Google Q3 Earnings Preview: AI Momentum Sets the Stage for Potential Breakout

Google parent company Alphabet is set to release its third-quarter earnings on Tuesday, following a stronger-than-expected performance in Q2, driven by advancements in artificial intelligence.

According to data from FactSet, analysts project that Google will report approximately $86.4 billion in revenue for Q3. U.S. revenue is expected to be around $40.6 billion, while international revenue is anticipated to reach $45 billion. Earnings per share (EPS) are forecasted at $1.84.

In Q2, Google reported nearly $85 billion in revenue, surpassing Wall Street expectations by about $640 million, with a 14% year-over-year growth. For the first time, Google Cloud’s quarterly revenue surpassed $10 billion, achieving over $1 billion in operating profit.

Over the past few years, Google has demonstrated significant growth in revenue and net income. Comparing to Meta and Microsoft, Alphabet reported the highest revenue and net income in Q2 2024, as shown in the chart below.

Sundar Pichai, Google’s CEO, highlighted the company’s strong performance in Search and momentum in Cloud. He stated: “Our robust results this quarter reflect the ongoing growth in Search and the positive trajectory of Cloud. We are innovating across all layers of the AI stack. With our longstanding infrastructure leadership and in-house research teams, we are well-positioned to capitalize on technological evolution and future opportunities.”

In recent months, Google has made progress in developing AI models with human-like reasoning capabilities. The company has focused on enhancing reasoning in its large language models (LLMs), including research on chain-of-thought prompting. According to Bloomberg, Google is using this technique to enable LLMs to solve multi-step problems through a series of intermediate reasoning steps, similar to human thinking. In September, OpenAI launched its own “reasoning” model series, OpenAI o1.

Additionally, Google has been improving the reasoning abilities of its Gemini chatbot. In July, Google introduced its fastest and most cost-efficient model, 1.5 Flash, to the free version of Gemini.

As of Monday morning, Google shares were up about 0.7%. The stock has gained 20.5% so far this year.

Looking ahead, if Google’s earnings exceed expectations, with EPS above $1.84 and revenue surpassing $86.4 billion, its stock is likely to break through the $170 resistance level, with the next target at $193.31, the previous high. Conversely, if earnings fall short, $151 could be a strong support level. Given Google’s continuous growth in Search, positive momentum in Cloud, and ongoing AI innovation, driven by its infrastructure and in-house research, it is likely that Q3 earnings will either meet or exceed expectations, potentially driving further stock price gains.

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