Google’s Q1 earnings reveal trade tariff pressures and AI challenges
As Google parent Alphabet prepares to report its fiscal Q1 earnings after market close today (Thursday), all eyes will be on how the company navigates the complexities of a changing global trade landscape and shifting dynamics in digital advertising.
Despite analysts not anticipating an immediate impact from recent tariff increases, investors are looking for any signs of how these changes, alongside broader economic factors, might influence the company’s performance later in the year.
Alphabet has already seen its shares drop 19% year-to-date, reflecting broader market uncertainty and concerns about its ability to maintain growth in its advertising business.
The company will release its earnings following a difficult quarter for the broader tech sector, with revenue growth projections often falling short of expectations.
The primary concern for many investors remains the escalating trade war, particularly U.S. tariffs on global trade partners. These tariffs have weighed on various sectors, and Alphabet’s advertising revenue—a key driver of its profits—is no exception.
Barclays analyst Ross Sandler noted that the digital ad market has already shown signs of softening, with declining transaction velocity in e-commerce and a general weakening in advertising spending.
While analysts expect Alphabet’s earnings per share to rise from $1.89 to $2.01 compared to the same period last year, the real concern is whether the company’s ad sales, particularly on YouTube, can maintain growth in a challenging economic environment.
Alphabet’s ad revenue for Q1 2025 is expected to top $66.4 billion, with YouTube ads bringing in $8.9 billion. The firm posted $61.1 billion in ad revenue in Q1 of 2024, a number that analysts will be carefully monitoring.
Alphabet is also confronting new challenges in the form of changing advertising strategies.
According to Wells Fargo’s Ken Gawrelski, agencies are reevaluating their ad search strategies, with more users turning to generative AI tools and social media platforms for information instead of traditional search engines.
This shift, compounded by the impact of tariffs and economic uncertainty, has added a layer of complexity to Alphabet’s advertising model.
In response to this, Alphabet is increasingly leaning into its Google Cloud Platform (GCP). The company is investing heavily in AI infrastructure and expanding its data centers, with plans to spend an estimated $75 billion in 2025 alone to boost its cloud and AI capabilities.
Despite the increasing demand for GCP, resource constraints have hindered Alphabet’s ability to fully meet customer needs, leaving potential revenue untapped.
Anat Ashkenazi, SVP and CFO at Alphabet, highlighted these constraints during Alphabet’s Q4 earnings call, stressing that the company is focused on ramping up infrastructure to meet future demand.
As Mizuho analyst James Lee points out, customers exposed to tariffs and DOGE are already scaling back their GCP budgets for 2025, contributing to what could be a challenging GCP revenue quarter.
Analysts expect $12.3 billion in revenue from GCP, up from $9.5 billion in Q1 of 2024, though concerns about the broader economic impact remain.
Adding another layer of complexity, Alphabet faces ongoing legal battles, particularly in the realm of antitrust.
Last week, a U.S. federal judge ruled that Google’s advertising monopoly is illegal, which could force the company to sell or restructure parts of its ad business.
This ruling comes on the heels of a similar decision last year, which found that Google’s search and ad business violated antitrust laws.
The legal fallout from these rulings could have long-term effects on Alphabet’s advertising revenue, which remains the lifeblood of its financials.
Despite these challenges, Alphabet’s focus on AI and cloud technology continues to evolve, and the company’s strategic investments in these areas will be key to its future success.
As Alphabet prepares for its earnings call, investors and analysts will be particularly focused on the company’s guidance for the second half of the year.
The continuing impact of tariffs, alongside changes in the global ad market, could mean more pressure on Alphabet’s margins and growth prospects in the coming quarters.
Still, with its continued investment in cloud infrastructure and artificial intelligence, Alphabet remains well-positioned to adapt to these challenges.