With Alphabet set to report second-quarter results in the early hours on the 23rd Korea time, a gauge of whether U.S. big tech will keep investing in artificial intelligence (AI), attention is also focusing on whether investor sentiment toward the domestic semiconductor sector will recover. As AI Semiconductor stocks such as Samsung Electronics and SK hynix have recently undergone corrections amid controversy over AI revenue monetization, analysts say the key variables in this earnings report are growth in advertising and cloud, and whether capital expenditures (CAPEX) are increasing.
Kim Jae-seung, an analyst at Hyundai Motor Securities, said in a report on the 22nd, "As controversy over AI revenue monetization has intensified recently and doubts have grown about the durability of the AI investment cycle, shares have fallen, centered on memory semiconductors that had strong returns this year," and "domestic investors are also watching Alphabet's earnings announcement."
Hyundai Motor Securities picked the growth of the advertising business as the first thing to check in this report. Advertising, which includes Google Search, YouTube, and Google Network ads, is a core business that accounts for 73% of Alphabet's total sales. The firm said if AI-powered gains in advertising efficiency continue, Alphabet can ease concerns about financial burdens despite large-scale AI investment.
Kim said, "Sales growth in the core business can be interpreted as improved advertising efficiency using AI, which can mitigate concerns about a weakened financial structure stemming from large CAPEX spending," adding, "it is worth watching whether growth in the advertising institutional sector will continue to expand."
The second point to watch is the growth of Google Cloud. With doubts mounting in the market about whether increased AI investment can actually translate into revenue, analysts say the cloud business will be a key indicator of AI monetization.
Kim explained, "Growth in AI cloud services justifies hyperscalers' CAPEX investment," and "to alleviate concerns about AI revenue monetization, sales in the cloud institutional sector need to beat market expectations and accelerate their growth momentum from the first quarter."
Lastly, the CAPEX outlook was highlighted. Because it is directly tied to demand for AI servers and HBM, analysts say any expansion in future investment plans could be a positive signal for the domestic semiconductor sector.
Kim said, "Alphabet has been continuing CAPEX expansion in line with market expectations since the fourth quarter of 2023," adding, "it is also worth watching whether the earnings release will trigger an upward revision to the 2027 CAPEX outlook." He added, "Some in the market expect Alphabet's 2027 CAPEX to expand to more than $300 billion."