Over the next few weeks, many companies are scheduled to report earnings for the first calendar quarter of 2025. For the technology sector, perhaps no other companies are as important as the "Magnificent Seven" -- Nvidia, Apple, Microsoft, Amazon, Meta Platforms, Tesla, and Alphabet(NASDAQ: GOOGL)(NASDAQ: GOOG). These businesses have unlocked new forms of monetization over the last few years thanks in large part to investments in artificial intelligence (AI).
Alphabet has been a major beneficiary of the AI movement, integrating the technology across its ecosystem from advertising, cloud computing, cybersecurity, and more. With the company slated to report earnings later this week on April 24, you might think scooping up shares in Alphabet now is a no-brainer.
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However, there are a number of items that investors should digest before buying Alphabet stock right now.
Let's take a look at some recent developments surrounding the company to help assess if Alphabet is a good stock to buy before the company reports earnings this week.
The advertising business could be in jeopardy
Alphabet is the parent company to internet search giant Google and video-sharing website YouTube. For many years, the global reach of both of these platforms provided Alphabet with unparalleled surface area on the internet. Hence, advertisers paid top dollar to get in front of Google's and YouTube's audiences.
Over the last few years, however, the competitive landscape has started to shift in the advertising realm.
The rising popularity of large language models (LLMs) such as ChatGPT has disrupted the default option of Googling something online. Don't get me wrong, Google is still a massively popular search engine. But just the idea that Google could lose its appeal with some demographics could lead to major repercussions pertaining to Alphabet being the de facto platform for advertisers.
On top of that, Amazon has quietly struck some notable partnerships in the advertising space with social media companies Pinterest and Snap. Although both of these deals are fairly nascent, I think Amazon's integration with Pinterest and Snapchat could bode particularly well with younger demographics, who tend to resort to online marketplaces as opposed to brick-and-mortar outlets. As a result, Amazon's budding ads business poses another potential road bump to Alphabet's growth.
Lastly, Alphabet has been under some intense scrutiny in recent years from the Justice Department. In particular, some judges perceive Google as an illegal monopoly in the advertising technology space. Without getting into the weeds of the various rulings, my high-level concern is that Alphabet could be distracted with appeals and lawsuits for the foreseeable future as it pertains to its ads business, which already appears to be under pressure from alternative platforms.
Image source: Getty Images.
Listen closely to management's words about artificial intelligence
For the last few years, AI has served as a growth driver for Alphabet. The company has integrated a number of AI-powered services across its ecosystem, in particular cloud infrastructure and cybersecurity. In my eyes, the long-term growth that AI presents was a driving factor supporting Alphabet's decision to acquire cybersecurity start-up Wiz earlier this year.
Right now, however, there is one possible hiccup that could deter Alphabet's AI growth for the time being. Of course, I'm talking about President Donald Trump's new tariffs.
While software is not a product that is imported or exported, it's not completely immune to tariffs either. These tariff policies are likely going to require businesses to operate under tighter cost controls for the time being. As a result, some businesses may choose to slow down spend in high-dollar areas such as expensive AI tools or cybersecurity protocols.
While I tend to think software platforms will exhibit some degree of resiliency during this murky economic period, investors should listen to management's words carefully during the earnings call as it pertains to what Alphabet is seeing from its AI customers from a demand perspective.
Should you buy Google stock before April 24?
Shares of Alphabet appear to be trading at a significant discount compared to historical valuations based on the forward price-to-earnings (P/E) ratio. On the surface, the attractive valuation could tempt investors to buy the dip in Alphabet without hesitation.
With that said, I think there are quite a few unknowns surrounding Alphabet's prospects right now. Between the advertising ruling, rising competition, and a cloudy picture around major sources of growth such as AI and cybersecurity, I think investors are best off waiting on the sidelines and digesting the earnings call later this week before buying shares.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Adam Spatacco has positions in Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, Pinterest, and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
