Alphabet Inc. (NASDAQ: GOOGL) is a holding company that owns and operates a portfolio of enterprises, with Google being the main subsidiary. The computer and technology sector giant relies on advertising and search revenues to fund all its other projects. Google is the leading search engine, with an 83% market share of the global search market.

As dominating as this sounds, it has dropped from a peak of nearly 90% in the past three years as rival search engine Microsoft Co. (NASDAQ: MSFT) Bing grew its market share to 9.19%, up from 6.43%. 

The two behemoths have been embroiled in a generative artificial intelligence (AI) arms race pitting Open.ai's Chat-GPT against Google's Bard AI powered by its next-generation large language model (LLM) Gemini for mainstream dominance.

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Glass half empty 

Despite releasing strong numbers, the market punished Alphabet shares as they sold off by 11% following its earnings report. On January 30, Alphabet reported Q4 2023 EPS of $1.64, beating consensus analyst estimates by five cents. 

Revenues grew 13.5% year-over-year (YoY) to $86.31 billion, beating analyst estimates of $85.28 billion. Google Search and Other revenues grew 12.7% YoY to $48 billion. Google Advertising revenues rose 11% YoY to $65.5 billion.

YouTube Ads revenues rose 16.5% YoY to $9.2 billion. Google Cloud revenues rose 26% YoY to $9.2 billion with an operating income of $864 million. Google's subscription business has grown revenues to $15 billion annually, driven by YouTube Premium, YouTube Music, and YouTube TV.

Alphabet CEO Sundar Pichai commented, "Our robust growth has been driven by strong direct and indirect channels. With ISVs, we have nearly tripled the number of co-sell deals from 2022 to 2023. In our ecosystem, there are nearly 90,000 Google Cloud Gen AI-enabled consultants. And Accenture has teamed up with Google Cloud to create a joint generative AI center of excellence."

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A finicky sell-the-news market reaction

The market can be finicky with Alphabet's results. In its Q3 2023 earnings release, the market sold off shares of Alphabet because its Google Cloud revenues indicated a deceleration in growth, reporting 22% YoY growth versus the 28% YoY growth in its previous Q2 2023 quarter. Still, advertising revenues grew 9.4% to $59.6 billion, while YouTube Ad revenues rose 11.3% to $7.9 billion. For 2023, Alphabet grew revenues 13% YoY to $86 billion. Advertising saw solid growth in the retail vertical, notably in the APAC region.

Advertising revenue normalization 

Upon reporting strong results for its fourth quarter of 2023, the market sold off Alphabet shares by 10% due to the perceived slowdown or normalization in advertising revenues, growing only 11% YoY to $65.5 billion, short of expectations for $65.8 billion. 

YouTube Ads revenues climbed 16.5% YoY to $9.2 billion, while Google Cloud revenues accelerated again, growing revenues 25.7% YoY to $9.2 billion, achieving its first operating profits for 2023 with a 5.2% operating margin. In comparison, Google is still far behind Amazon.com Inc. (NASDAQ: AMZN) AWS cloud margin of 30%, but margin expansion should be positive.

Launching the Gemini AI era

Google stated that the Gemini era has launched. Gemini is Google's next-generation LLM released in December 2023. 

It comes in three versions: Nano, Pro and Ultra, enabling it to operate on various devices ranging from smartphones to data centers. Gemini Pro works with over 40 languages, generating text and communicating in over 230 countries. Gemini is being utilized in search, resulting in a 40% latency reduction in the United States.

The initial rollout applies Gemini Pro to power text-based prompts but will gradually expand to support multimodal content, including audio and images. Bard should be upgraded to Bard Advanced powered by Gemini Ultra, enabling it to operate in different modalities. Unlike Chat-GPT, Bard is still under development in beta mode and isn't explicitly monetized but is used to build Alphabet's AI infrastructure.

Alphabet analyst ratings and price targets are at MarketBeat. You can find Alphabet peers and competitor stocks with the MarketBeat stock screener.

Daily rising wedge breakdown 

The daily candlestick chart on GOOGL illustrates a rising wedge breakdown pattern, a reversal pattern comprised of sharp higher highs and higher lows with a tightening channel that results in a sharp reversal. In GOOGL's case, the daily markets structure high (MSH) sell trigger formed at $151.19 heading into its Q4 2023 earning release, which caused a gap down to $144 as shares eventually slipped to a low of $136.50 before rebounding back up through the daily 50-period moving average support at $139.38. 

The daily relative strength index (RSI) should return to the 50-band. Pullback support levels are at $139.42, $136.50, $131.99 and $128.31.