AI Boost: Can Google’s Earnings Surpass Expectations?

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Analysts from Wedbush, J.P. Morgan, and Bank of America predict that Google’s advancements in artificial intelligence will positively influence its second-quarter earnings, with Alphabet, Google’s parent company, scheduled to report its earnings after the market closes on Tuesday.

Bank of America analysts Justin Post and Nitin Bansal have increased their revenue predictions for Google. They believe that integrating the Gemini AI into Google Cloud and using AI Overviews in Google Search will enhance sales. In a research note at the end of last week, they expressed confidence in the positive impact of AI integrations across Google’s ecosystem, asserting that a broader rollout of AI overviews could boost activity in the core Search business. This optimism comes despite some early challenges faced by AI overviews, which were the subject of online jokes due to initial inaccuracies and errors. They raised their price target for Google’s stock from $200 to $206.

In April, Google reported a remarkable 60% profit increase in the first quarter, largely attributed to its AI developments. This announcement led to a rise in its stock price, propelling the company’s market capitalization above $2 trillion, joining the ranks of Apple, Microsoft, and Nvidia.

Google’s strong first-quarter results followed several months of new artificial intelligence product launches, particularly within its Gemini AI framework. Notable announcements from the Google I/O developer conference included a futuristic AI assistant capable of visual and verbal interaction through users’ smart glasses. Google claims that its latest version of Gemini AI is 20% faster than the latest ChatGPT.

While Wedbush’s Dan Ives expressed a more cautious view on AI Overviews compared to Post and Bansal, he noted in a research note that it could become a supporting factor for Search monetization over time. Ives also pointed out that AI is positively impacting Google Cloud and, like many on Wall Street, anticipates a 27% rise in Cloud revenue compared to last year.

J.P. Morgan’s Doug Anmuth supported the optimistic outlook, designating Google as one of his firm’s top technology stocks, alongside Uber and Amazon, stating that his team is “encouraged by GenAI progress” ahead of Alphabet’s second-quarter earnings report. However, Raymond James analyst Josh Beck cautioned that while the current narrative surrounding AI is positive, its long-term effect on Google sales remains uncertain.

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