Nasdaq 100 forecast: How will Alphabet stock perform ahead of earnings?

Key takeaways

• Alphabet has underperformed rivals and the Nasdaq 100 in 2023
• Sales growth forecast to accelerate for second consecutive quarter thanks to easier comps
• Earnings to grow for the first time in 18 months before accelerating in the second half
• Google Cloud to deliver second straight quarterly profit as sales growth slows
• Markets still see AI as a threat rather than an opportunity

 

Alphabet Q2 earnings date and time

Alphabet is scheduled to release second quarter earnings after US markets close on Tuesday July 25. A conference call will be held on the same day 1400 PT.

 

Alphabet stock: Q2 earnings consensus

Alphabet is forecast to report a 4.4% year-on-year rise in revenue in the second quarter to $72.75 billion and adjusted EPS is expected to rise 9.2% to $1.32, according to consensus numbers taken from Bloomberg.

 

Alphabet stock: Q2 earnings preview

Alphabet has underperformed this year thanks to its dependence on advertising and because AI is regarded more as a threat than an opportunity. The stock has recovered ground in 2023, but less so than its Big Tech rivals as a result.

Encouragingly, revenue growth is forecast to accelerate for a second consecutive quarter and rise 4.4% to $72.8 billion. That will be down to a return to advertising growth on both Google and YouTube, which are forecast to report growth of 2.1% and 0.9%, respectively. That is tepid but should accelerate in the second half as comparatives get easier, although its ad business remains vulnerable to any economic slowdown.

Earnings are set to return to growth, with adjusted EPS estimated to rise 9.1% to $1.32, after a year of declines thanks to easier comps and milder cost pressures, although expenses are still rising at a faster pace than revenue.

Google Cloud should produce its second consecutive quarter of operating profits, marking an achievement that has been aptly timed considering it too has seen a slowdown in growth as companies become more stringent with spending. It is estimated to report a $142 million profit in the second quarter following the $191 million we saw in the first. This will support margins and markets would welcome any signs Google Cloud is on will start significantly contributing to the bottom-line. Still, it remains far behind rivals Amazon and Microsoft, which both boast larger and far more profitable cloud computing businesses.

 

AI stocks: Alphabet

Alphabet has so far failed to get markets excited about its AI prospects as markets ponder whether the breakthrough technology is a huge opportunity or threat to Google. Alphabet has risen around 35% since the start of the year but it has still underperformed the Nasdaq 100 and trades at a mild discount to its rivals, including Meta. It is also trading about 6% below its five-year average, suggesting investors have assigned little to no value to Alphabet’s AI prospects so far.

If anything, AI has so far hurt its valuation as investors worry about what it means for the long-term future of its advertising business. Microsoft has already declared war on Google after reviving its Bing search engine and infusing it with new AI tools from ChatGPT. Any signs that it is losing ground or experiencing price or profitability pressures from the likes of Bing or ChatGPT would be extremely bearish for the stock and signal that AI could be a menace for its core business.

Risks posed from AI are very real, but Alphabet has been among those working on AI for the longest. Now it needs to show it can be a leader in the space and convince markets that AI will be a catalyst. It recently merged its DeepMind and Brain units together – which should fuel future product launches - and it has recently relaunched its Bard AI chatbot in Europe after addressing security concerns, while also introducing it into other countries like Brazil.

 

Where next for GOOGL stock?

Alphabet shares have struggled to find higher ground since hitting 14-month highs of $127 in early June. Meanwhile, we have seen $116 provide reliable support for the past two months, with this level proving enough to lure buyers back into the market. We are looking for the stock to breakout of this range to decide which direction the stock heads next.

The RSI has slipped into bearish territory and the rise in trading volumes during the selloff last week suggests the fall could gain momentum if it fails to impress this week. A break below $116 could open the door to a steeper fall to $108.

A rebound above the last highs could pave the way for a move to $133 and then $143.

 

Nasdaq 100 analysis: Where next?

Alphabet is the among the largest components of the Nasdaq 100 and carries a 5.5% weighting, meaning its performance has a significant impact on how the broader index fares.

The index pulled back last week as we got the first earnings out from the tech sector. We saw 15,425 hold as a floor on both Thursday and Friday as it hovers above the middle of the parallel range. We could see it slip back toward the 78.6% retracement at 15,300 if it remains under pressure. Any severe drop risks seeing it fall back into the bottom-half of the channel, which is currently lining-up with the 50-day moving average.

On the upside, the Nasdaq 100 needs to close back above the recent-high of 15,888 before eyeing a move above the psychological level of 16,000.