Google’s parent company Alphabet Inc (NASDAQ:GOOG)’s Cloud segment growth could drive upside in its earnings report due after Tuesday’s closing bell, analysts at Wedbush believe.
“While digital advertising demand remains strong for both Search and YouTube, we think it will be difficult for Alphabet to materially outperform expectations for advertising growth in the near-term, given recent FX headwinds and more challenging comps in 4Q and through 2025,” they wrote in a note to clients.
“Instead, we highlight ongoing strength in Cloud segment growth and the potential for more aggressive cost-cutting under the company's new CFO as possible drivers of upside with the upcoming report.”
Wedbush analysts expect Alphabet’s fourth quarter revenue to grow 12.2% year-over-year to $96.8 billion, in line with the Wall Street consensus of $96.7 billion.
They expect operating income of $30.1 billion with a 31% margin, slightly below the consensus of $30.4 billion.
Google Search growth is expected to grow 11.3% and YouTube ads by 11.5%. Cloud revenue is expected to grow 32.3%.
During Alphabet’s earnings call, analysts will be on the lookout for 2025 capital expenditures (capex) commentary and the industry implications of DeepSeek advancements.
Wedbush forecasts 2025 capex of $63 billion, a 22% year-over-year increase, ahead of the Street consensus of $59 billion.
“We expect management will discuss its capital allocation strategy on the coming earnings call as well as capex requirements to support AI initiatives,” they wrote.
“We will be listening for any incremental commentary related to the recent AI advancements by DeepSeek and the impact that this week's developments will have on the broader industry and Google's spending plans.”
Analysts have an ‘Outperform’ rating on Alphabet and $220 price target. Shares of Alphabet traded at about $203 on Monday afternoon.
“We think there is a case for multiple expansion for Alphabet in the coming quarters and years as investors gain more comfort related to regulatory risk and the impact of generative AI on Google Search,” they wrote. “We remain optimistic on the longer-term prospects of the search business as Google manages through this period of transition.”