Alphabet : AI Challenges and Outlook for Q1 2023 Earnings Report

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The tech giant’s earnings season is fast approaching, and some of the largest publicly traded companies are reporting their latest quarterly results. Wall Street expects this to be a tough quarter for big tech earnings. Microsoft It is the only member expected to report EPS growth, after seeing declines in the past two quarters, while the rest of the group is expected to report another quarter of declines. the alphabet And Microsoft will announce its earnings on April 25 after the market closes. meta on April 26th, Amazon on April 27th and Apple on May 4th.

Wall Street expects a quarter of modest declines in revenue from YouTube and the search engine Google, as total ad sales decreased by 1.6% amid an advertising environment that is facing difficult times due to the presence of competitors. While this growth has slowed in recent quarters and it’s important to remember that the division is still losing money despite the overall revenue support, Google Cloud revenue is estimated to increase by 28%.

Margin pressure from higher costs and capital expenditures means that each unit will be much less profitable. Alphabet’s operating margin is expected to be 23.9%, down from 29.6% last year. For the fourth consecutive quarter, Alphabet’s EPS will contract due to slower revenue growth and tighter margins.

Specifically, Alphabet’s workforce should have peaked and will begin to decline this quarter, as it begins to implement the 12,000 job cuts it announced in January. However, the market expects Alphabet’s sales to start growing again and its margins to start improving in the second quarter. Investors are hopeful that it will lead to its first EPS gain in over a year and would be very positive, should Google Cloud show signs of breaking even.

However, the prospects are uncertain. Even if Alphabet manages to control costs, the company’s revenue stream is still vulnerable to the uncertain economic outlook and increased competition generated by the rise of artificial intelligence. This could affect prices and force Alphabet to spend more to improve its products and customer retention. With the latest ambient noise chatGoogle is lagging behind in integrating AI capabilities to its search feature, after launching its own version of the AI ​​Chatbot cold It earlier caused a huge uproar over misinformation. Therefore, the focus will also be on how management can convince investors that it will remain competitive so as not to lose market share. Microsoft released a new version of bing, Which includes OpenAI’s generative AI chat feature, which has greatly improved the company’s competitive position.

current expectation of Refinitiv For the upcoming Alphabet revenue in the first quarter of the year $68.8 billion, up 1.2% year-on-year. Earnings per share (EPS) is estimated at 1.07 USD, down 13.1% from last year. Looking ahead, the first quarter of 2023 sees the US Economic Shock Index returning to positive territory to deliver the highest reading since April 2022. The still-strong US labor market may play a role and a positive reading indicates that economic conditions may remain above expectations, at least for the first quarter of 2023. This could increase the chances that potential resilience will be reflected in upcoming results, as Alphabet derives nearly half of its revenue from the United States.

Technical review

# Alphabet- A, D1 – Indicators of achieving gains in the first quarter of 2023 by more than 15% (January-March). The follow-up rally from March still looks quite dominant as it hit a high of 109.15 in early April, surpassing the February high of 108.17although it was corrected again in the middle of the month to 103.06, due to rumors that Samsung is considering switching the default search engine on its smartphones to Microsoft Bing from Google.

During trading on Wednesday (04/19), the price increased +0.78% and closed at 104.07. The moving average is still above the center line and above the 26-day moving average, which means that the short-term price trend is still up. move up 109.15 predicted for FE61.8 (110.34) and FE 100 (116.90) from lower 89.42-106.58 And 99.74. In the meantime, move below 103.06 Support can be tested at 99.74 with continuing on 95.96.

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Eddie Fangisto

Market Analyst – HF Education Office – Indonesia

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