Alphabet will release its earnings report after the US market closes tomorrow morning. The core issue in this report is the interplay between a slowdown in search revenue and better-than-expected growth in cloud services. JPMorgan Chase compared the expectations of buy-side investors and Wall Street (i.e., the majority expectations from investment banks and securities analysts) and found the following:
1. Buy-side investors generally expect search revenue to grow by about 14% year-over-year, slightly lower than Wall Street's expectation of about 15%.
2. Driven by TPU sales, buy-side investors expect Google Cloud to grow by 105%-115% year-over-year, significantly higher than Wall Street's expectation of about 90%. More importantly, cloud business profit margins, if higher than the market expectation of about 33%, will reinforce the assessment that TPU has high profitability.
3. Looking ahead to 2027, buy-side investors generally believe that Google Cloud's growth rate could reach 100%-120%, with capital expenditures of approximately $330 billion-$350 billion, both higher than Wall Street's expectations.
4. JPMorgan Chase believes the market should focus more on the impact of TPU and cloud business on revenue, profit, and valuation in 2027-2028, rather than on a slight short-term underperformance in search revenue.
