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Alphabet Inc. (Google) stock surged almost 6% in morning trading after the Google parent company reported better-than-expected results for its fiscal third quarter.
At press time on October 30, Google shares price was at $181.18, representing a 5.87% growth.
Google’s Q3 Earnings: Brief Outline
The earnings report marks the debut of Anat Ashkenazi, Alphabet’s new Chief Financial Officer (CFO), who took over on July 31.
The company posted earnings per share of $2.12 on revenue of $88.27 billion for the quarter ending September 30, marking a 37% increase in profit and a 15% rise in sales compared to the same period last year.
According to Bloomberg data, analysts had forecast earnings per share of $1.83 on revenue of $86.44 billion. Alphabet’s advertising revenue exceeded expectations, reaching $65.85 billion, compared to analysts’ estimates of $65.5 billion and last year’s $59.65 billion.
| Metric | Q3 2024 Actual | Analyst Estimates |
|---|---|---|
| Earnings per Share (EPS) | $2.12 | $1.83 |
| Total Revenue | $88.27 billion | $86.44 billion |
| Advertising Revenue | $65.85 billion | $65.5 billion |
A key driver of this growth was Alphabet’s cloud business, with revenue jumping 35% year-over-year to $11.4 billion, surpassing expectations.
CEO Sundar Pichai highlighted during the earnings call that the company’s AI portfolio attracts new customers and facilitates larger deals, further boosting the cloud segment.
1/ Just finished my Q3 earnings remarks highlighting extraordinary momentum across the company and our differentiated full stack approach to AI innovation – robust infrastructure, research + models, and products + platforms. A few highlights: https://t.co/ZpF8zDwkcH ??
— Sundar Pichai (@sundarpichai) October 29, 2024
Google Stock Price: Analyst Expectations
Analysts will also want more transparency regarding YouTube’s financials. In the lead-up to the report, institutional ownership of Google stock (GOOGL) has weakened.
For the third quarter, analysts estimate that earnings per share (EPS) will reach $1.84, representing a 19% increase from the previous year. Revenue is expected to grow by 13% to $86.4 billion.
Google’s cloud computing division is projected to show strong growth, with revenues anticipated to rise by 29% to $10.87 billion. However, some analysts, such as Scott Devitt from Wedbush, suggest that while Q3 earnings might not be a major catalyst for the stock, Alphabet shares remain attractive due to their relatively low price-to-earnings ratio compared to the broader market.
Legal and Competitive Pressures Weigh on Google’s Stock Performance
Amid Google’s antitrust challenges, the company faces headwinds from government scrutiny. A U.S. District Court ruled on October 7 that Google must allow third-party app stores, such as Epic Games Store, onto the Google Play platform and ensure equal access for all apps. Google is expected to appeal the ruling, but this legal setback comes amid a broader Department of Justice (DoJ) antitrust case that could force changes to Google’s core business practices. Another key concern is the potential loss of Google’s $20 billion search deal with Apple, which makes Google the default search engine on iPhones. The outcome of this legal battle could impact Google’s dominance in the search market, and a ruling may come as early as August 2025.
Despite these challenges, Google’s autonomous driving division, Waymo, continues to gain momentum, recently closing a $5.6 billion funding round.
In the AI space, OpenAI continues to grow as a strong competitor, launching a new large language model (LLM) and attracting significant investor interest. To counter this, Google has been actively integrating its Gemini AI tools into its core products, including internet search. The company has also expanded its AI Overview feature globally, which provides conversational summaries alongside search results.
Google’s Financial Outlook and AI Investments
Google’s investment in artificial intelligence and cloud computing is a primary focus for investors. In Q2, Google’s capital spending surged by 91% to $13.18 billion as the company invested heavily in AI infrastructure. CEO Sundar Pichai emphasized the importance of AI investments, stating, “The risk of underinvesting is dramatically greater than the risk of overinvesting.”
While Google’s Performance Max advertising platform has helped advertisers achieve better results, the company is facing growing competition in the AI-driven ad space, particularly from rivals like Microsoft and Amazon.
Google has maintained its position as the third-largest cloud service provider, but it trails Amazon Web Services and Microsoft Azure. Analysts are watching Google’s cloud business closely, as it is expected to be a major growth driver for the company, particularly with the integration of cybersecurity firm Mandiant, which Google acquired for $5.4 billion in 2022.
Is Google Stock a Buy After Q3 Earnings?
Several analysts have expressed confidence in Alphabet’s AI trajectory while talking to MarketWatch, especially after seeing the strong performance across multiple segments in the company’s recent earnings report. Jefferies analyst Brent Thill described the quarter as an “all-around winner,” noting how AI is improving ad efficiency, attracting more Google Cloud customers, and driving operational improvements within the company. Thill raised his price target for the stock to $235 while maintaining a buy rating, citing AI as a critical tailwind for future growth.
Meanwhile, Bernstein’s Mark Shmulik drew attention to Alphabet’s ability to navigate the noise of regulatory and competitive risks while achieving growth across diversified segments. Shmulik pointed out that Alphabet’s success extends beyond advertising, with strong gains in Google Cloud, YouTube subscriptions, and Pixel device sales. However, he also warned that regulatory and competitive threats remain unresolved, keeping his market-perform rating on the stock, though he increased the price target to $185 from $180.
Despite the hurdles, analysts agree that Alphabet’s focus on generative AI and cloud services positions it well for continued success in the tech industry. Many call the company a leader in integrating AI technologies across its platforms.
