Google to Report Q1 Earnings as Investors Monitor Trade War Impact and AI Strategies
Alphabet Inc. (GOOG, GOOGL), the parent company of Google, is set to announce its fiscal first-quarter earnings this Thursday. Wall Street is eagerly awaiting the results, as this will be the first earnings report since President Trump implemented a series of tariffs on global trade partners. While analysts do not anticipate immediate impacts from the tariffs on Q1 revenue or earnings, investors are particularly focused on any forward guidance that could hint at the potential consequences in the second half of the year.
Key Factors Affecting Google’s Performance
As the first quarter draws to a close, several factors are influencing the outlook for Alphabet. A notable concern for analysts is the recent slowdown in e-commerce transaction velocity. Barclays analyst Ross Sandler indicated in an investor note that digital advertising, a major revenue driver for Google, could experience a weakening in the second quarter due to macroeconomic factors, including the ongoing trade war and broader economic uncertainty. According to Sandler, the decline in transaction velocity, particularly in e-commerce, could reflect a dip in the demand for digital advertising.
Despite these concerns, analysts expect Google to post strong Q1 results, with earnings per share (EPS) projected at $2.01, representing a modest increase from the previous year’s $1.89. Revenue is expected to total approximately $89.1 billion, up from $80.5 billion in Q1 2024. More importantly, revenue excluding traffic acquisition costs (TAC)—which represents the payments Google makes to partner companies for using its platforms—is expected to reach $75.4 billion. This performance would demonstrate the company’s ability to continue generating significant revenue from its core advertising business, even amidst broader economic challenges.
Advertising Revenue: A Key Indicator
Google’s advertising business remains the cornerstone of its revenue stream, and analysts expect advertising revenue to surpass $66.4 billion for the quarter. YouTube, in particular, is expected to see strong performance, with ad revenue projected to reach $8.9 billion, up from $6.1 billion in the same quarter last year. As one of the largest digital ad platforms globally, Google’s ability to sustain strong growth in its advertising segment will be closely scrutinized by investors, especially as advertisers reassess their strategies in the face of economic pressures.
In addition to its advertising business, investors will also keep a close eye on Google’s cloud division, specifically its Google Cloud Platform (GCP). As competition in the cloud space intensifies, with major players like Amazon Web Services (AWS) and Microsoft Azure continuing to expand, Google is increasing its investments in artificial intelligence (AI) infrastructure. The company has committed a significant $75 billion in 2025 alone to build out its AI data center capabilities.
AI and Data Center Investments: A Long-Term Strategy
During its Q4 2024 earnings call, Google’s Senior Vice President and CFO, Anat Ashkenazi, discussed how the company’s AI services are currently facing resource constraints. While Google’s AI offerings are in high demand, the company is working to address these limitations by expanding its data center capacity. However, until the necessary infrastructure is fully in place, Google risks losing out on potential business opportunities from customers seeking AI-powered solutions. The substantial investment in AI infrastructure, though necessary for long-term growth, may weigh on short-term profitability.
Trade War and Tariffs: The Wider Economic Impact
Beyond AI investments, there are broader macroeconomic factors at play. One of the more significant challenges facing Google in Q1 2025 is the impact of trade tariffs. Wells Fargo Securities equity analyst Ken Gawrelski noted in a recent report that agencies are reevaluating their advertising strategies due to a growing reliance on generative AI and social media platforms to discover information online, potentially undermining Google’s search dominance. Additionally, concerns about the ongoing trade war and its potential to slow down global economic growth could further impact advertising budgets and consumer spending, creating additional uncertainties for Google’s performance.
Looking Ahead: What to Expect for the Rest of the Year
As Alphabet prepares to release its Q1 earnings report, analysts will be keen to hear any guidance on the company’s outlook for the rest of 2025. While Google’s performance in the first quarter is expected to remain strong, particularly in its advertising business, the company’s ability to navigate the challenges posed by trade wars, AI investments, and shifting digital ad trends will be critical in determining its future growth prospects.
Investors will be paying close attention to how Google adapts to these pressures, as any signs of slowdown could significantly affect the stock price. With Alphabet’s shares down 19% year-to-date, a cautious outlook or disappointing results could lead to further volatility in the market. On the other hand, stronger-than-expected earnings or positive guidance for the second half of the year could provide a much-needed boost to investor confidence.
As the global economy continues to evolve, Google’s ability to maintain its competitive edge in advertising, cloud services, and AI infrastructure will be central to its long-term success.
