ar
Big names in tech including Alphabet (NASDAQ: GOOGL) and IBM (NYSE: IBM) will report their Q2 earnings reports on Wednesday, July 23 after the closing bell.
The rapid emergence of AI and cloud computing is changing the competitive picture of the technology sector. Both Alphabet and IBM are part of the drivers of this evolution of advanced tech, leveraging software, AI and hybrid cloud strategies to boost growth.
However, both companies’ paths are different. IBM is focused on software growth and operating in regulated industries while Alphabet is focused on search dominance, advertising and cloud services.
IBM Stock Fueled by Strong Tech Growth
Wall Street Estimates
- Earnings per Share (EPS): $2.65 per share, a 9% increase YoY
- Revenue: $16.6 billion, a 5.26% increase YoY
The tech giant’s shares are up 30% so far this year, compared to a 7% increase for the S&P 500. IBM’s gains have also outpaced those of the Big Tech stocks. The cloud and data platform has beaten earnings for four consecutive quarters. ⁽¹⁾
Software Growth in Q1 Fuels Optimism
IBM’s software segment generated $6.3 billion, which represents an increase of 7% YoY. Hybrid Cloud and Automation grew by double digits, while Data and Transaction Processing remained resilient. ⁽²⁾
This performance was led by IBM’s aggressive M&A strategy. The acquisition of HashiCorp boosted its hybrid cloud infrastructure automation capabilities. This strategic move could position IBM as a top provider of secure, compliant AI and cloud solutions. ⁽³⁾
IBM has been supporting its software offerings, which contributed to a 9% growth in the segment in Q1. IBM continues to use its Red Hat acquisition as a strong driver for growth. The focus continues to be on increasing demand for AI solutions. ⁽⁴⁾
AI and Hybrid Cloud Segments
IBM represents a 2% share of the global hybrid cloud industry and is trying to shift into regulated sectors such as finance and healthcare. Its hybrid model suits companies’ needs for data storage and system integration.
The generative AI market, expected to grow from $2.48 billion in 2024 to $35.12 billion by 2034, offers big potential. With a 3.48% share in digital marketing AI by mid-2025, IBM could be set for further growth. ⁽⁵⁾
Factors Expected to Impact Earnings
IBM has extended its collaboration with Microsoft by establishing a new feature called Microsoft Practice within IBM’s consulting segment. The partnership aims to develop more innovative products across various sectors such as retail, consumer packaged goods, government, financial services and supply chain management.
Despite solid hybrid cloud and AI growth, IBM remains exposed to competitors such as Amazon Web Services and Microsoft’s Azure. The company’s ongoing, heavily time-consuming business model transition to the cloud is a challenging task. Weaknesses in its traditional business and foreign exchange volatility remain significant concerns.
Alphabet’s AI and Cloud Surge Amid Regulatory Challenges
Wall Street Estimates
- Earnings per Share (EPS): $2.17 per share, an increase of 14.81% YoY
- Revenue: $93.9 billion, an increase of 10.7% YoY
Alphabet continues to remain a leader in the tech industry with its strong innovation in AI with advancements in search and cloud computing. The IT giant is expected to report strong earnings, driven by advancements in AI and Google Cloud growth.
AI-Driven Search and Cloud Growth
Alphabet’s Search and Other segment revenue is expected to come in at $52.36 billion in Q2, which represents an increase of 8% YoY due to advanced AI features. Google Cloud revenue is expected to come in at $13 billion, up 26% YoY due to a partnership with Nvidia and the Wiz acquisition. ⁽⁶⁾
Innovation in AI will be crucial for Google Cloud’s continued success. The company’s ability to integrate cloud offerings with other Google products like Workspace provides a competitive advantage that rivals find difficult to replicate.
The proposed $32 billion acquisition of Wiz would enhance Google Cloud’s security capabilities, addressing a key consideration factor for businesses selecting cloud providers. ⁽⁷⁾
Regulation Risks
Alphabet faces regulatory challenges in the US and EU. In the US, the Department of Justice is forcing Alphabet to share search data with AI competitors or relieve its Chrome browser. This issue could weaken Alphabet’s data advantage. ⁽⁸⁾
The European Union has fined Alphabet with a payment of €4.1 billion for exploiting Android’s dominance to provide unfair advantages to Google’s own apps. While the company continues to appeal, the likelihood of substantial financial penalties remains high. ⁽⁹⁾
Balancing Innovation and Risk
Alphabet’s upcoming earnings report could indicate its ability to manage growth in AI and cloud services while dealing with regulatory issues and competition.
The IT giant’s ability to integrate AI across its products and services in order to expand Google Cloud’s market share and could try to manage its antitrust issues to contribute to its long-term success.
Markets will monitor management’s comments and updates on the acquisition of Wiz and strategies to take advantage of competition without jeopardizing its core search business.
