All eyes on AI investment, ad market growth as meta is disappointing.

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Alphabet ( GOOG , GOOGL ) is set to release quarterly earnings after the bell on Thursday, continuing a big week for U.S. tech giants to emerge from a punishing run on Wall Street. The company is expected to provide updates on the race to transform large-scale AI investments into new revenue streams and the state of the large-scale digital advertising market.

Alphabet's report comes a day after its ad rival and big tech peer META ( META ) issued a disappointing Q2 forecast that said spending was rising for the year and that AI investments were driving significant revenue. It will take some time to get. Metastock fell as much as 14 percent after the results.

Wall Street's reaction underscored the high expectations investors reserve for tech giants and signaled that Google will also be closely scrutinized for any missteps.

Here's what Wall Street expects for some of Alphabet's most important metrics in the company's fiscal first quarter, according to Bloomberg data:

  • Revenue, excluding traffic acquisition costs: $66.07 billion expected ($58.07 billion in Q1 2023)

  • Adjusted earnings per share: Expected $1.53 ($1.17 in Q1 2023)

  • Cloud revenue: $9.37 billion expected ($7.45 billion in Q1 2023)

  • Ad revenue: $60.18 billion expected ($54.55 billion in Q1 2023)

Heading into earnings season, Alphabet is right in the middle when it comes to ranking the performance of the “Magnificent Seven” stocks, which are up 15% so far this year — Apple ( AAPL ) and Tesla ( TSLA , well ahead of losses but below META's ( META ) and Nvidia's ( NVDA ) sharp percentage gains.

But even tech's winners are under pressure.

Many of the market's biggest names are just coming back from mid-month losing streaks. Worried investors heeded warnings that the Fed could keep interest rates high for several more months and perhaps the rest of the year.

Chilling sentiment on Wall Street raises the stakes for technical earnings this week and next. Strong corporate updates could further insulate the tech giants from broader interest rate concerns, giving the market another reason to reignite the equity rally. But an underperformance by Silicon Valley could add to the uncertainty. And with these high-flying companies, even a good showing against a standard of near-perfection may not be enough.

Analysts expect Alphabet's revenue to grow more than 13% from the same period last year, following a strong performance last quarter and outpacing the single-digit growth that defined most of 2023.

Google has made many efforts to enhance its search tools with AI and offer new, advanced language models like Gemini. Analysts will be looking to investigate the company's progress on AI integration and better read the costs of developing the latest AI technologies. Capital expenditures are expected to exceed $10 billion for the quarter.

Last year, Google was seen largely playing catch-up to Microsoft ( MSFT ) , which was the first in the tech world to tap into the cultural excitement around consumer AI chatbots. Microsoft invested in OpenAI, the company behind the popular ChatGPT.

Another key issue for Google, a digital advertising juggernaut, is how the development of its AI tools will affect search ad revenue. Google is already adding new AI tools to its legacy search infrastructure. But in the long term, chatbots and other consumer AI tools threaten to disrupt how people get information from the web. For Google, in particular, the challenges posed by AI development and adoption are a major concern for some analysts.

The company is also expected to expand its cloud business, which is an increasingly important segment for investors due to its use in the development of artificial intelligence. Wall Street projects Google Cloud revenue to register more than $9 billion, up nearly 26 percent from a year ago. Google is working to claim additional cloud market share, where it currently ranks third behind rivals Amazon ( AMZN ) and Microsoft.

Alphabet's report comes during a tumultuous moment for the company.

Last week, CEO Sundar Pichai announced a reorganization of its AI teams to simplify the company's makeup and improve efficiency. That same day, Google fired 28 employees who were involved in protests against plans to provide AI and cloud services to the Israeli government and military. More staff have since been fired.

In Pichai's note to employees announcing the structural changes, he pointed to protest activity, saying, “This is a business, and not a place to work in a way that disrupts co-workers.”

Hamza Shaban is a Yahoo Finance reporter covering markets and the economy. Follow Hamza on Twitter. @hshaban.

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