Technology giant Alphabet Inc (NASDAQ:GOOG)(NASDAQ:GOOGL) is one of several Magnificent 7 stocks set to report what could be a telling of how much growth is ahead in the tech sector and how AI investments are paying off when the company reports third-quarter financial results after market close Tuesday, Oct. 29.

Earnings Estimates: Analysts expect Alphabet to report third-quarter revenue of $86.34 billion, compared to $76.69 billion in last year's third quarter according to data from Benzinga Pro.

The company has beaten analyst estimates for revenue in seven straight quarters.

Analysts expect Alphabet to report third-quarter earnings per share of $1.85, up from last year's $1.55 in the third quarter. The company has beaten analyst estimates for earnings per share in six straight quarters.

What Analysts Are Saying: One of the big topics on investor and analyst's minds ahead of Alphabet's earnings report has been a potential breakup or restructuring of the company as the U.S. Department of Justice (DOJ) considers measures to address Google’s dominance in the search market.

While a breakup could receive plenty of negative headlines about Alphabet's alleged search monopoly with its Google brand, investors could benefit with a breakup according to sum-of-the-parts valuations from several analysts.

"We don't believe a full breakup would happen. Even if it did, it would be good for shareholders because the sum of the parts is greater than the whole," Jefferies analyst Brent Thill recently said.

The analyst said big technology companies such as Alphabet, Meta Platforms and Amazon have many parts of the business that are not being valued based on historic multiples and a breakup could be a better outcome for shareholders.

Thill said the DOJ's probe is an overhang and a distraction that could be similar to a past probe into Microsoft that lasted nearly 10 years and saw the stock trade sideways.

“We continue to believe investors should take advantage of this volatility.”

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Needham analyst Laura Martin has emphasized for months that a forced breakup of Alphabet could lead to a significantly higher valuation.

“We believe that GOOGL is worth more in pieces than together, so we welcome regulators’ attempts to break up GOOGL,” Martin said in a new investor note.

Martin said the European Union will likely require Alphabet to spin off its third-party network ad business.

A break-up could put a spotlight on the valuation of video platform YouTube.

“We calculate that YouTube would be valued between $455B-$643B if separately traded.”

Martin said Alphabet shares would likely trade higher if the company breaks up due to investors being willing to pay more for “pure-play assets,” more data points could be publicly shared and employees receiving shares in business lines they directly impact.

Martin has a Buy rating on Alphabet and price target of $210.

Wedbush analyst Scott Devitt recently reiterated an Outperform rating and $205 price target on Alphabet stock.

Devitt said Alphabet is an "above average company" trading at a "below average multiple."

The analyst highlighted strong advertising growth for Alphabet even in the face of competitive pressures in the space.

"Sentiment is mixed for Alphabet relative to mega cap internet peers as investors continue to weigh potential regulatory headwinds and the risk of generative AI to the search business," Devitt said.

Devitt said Alphabet's generative AI in search has shown high user engagement, which could create new monetization opportunities down the road.

"While we don't view the upcoming quarterly report as a likely catalyst for Alphabet, we do think shares are attractive at current levels with shares trading below the market multiple."

Key Items to Watch: As one of the largest companies to report during the week, Alphabet's Tuesday report could serve as a key report and create volatility among tech and advertising-related stocks.

Investors and analysts will be watching to hear commentary on the company's search segment. In the second quarter, Google Search represented revenue of $48.51 billion with YouTube advertising revenue of $8.66 billion.

The company's YouTube segment could also be a key area to watch as the video segment is seeing competition and many companies across video, gaming and streaming competing for a market share of consumers' time.

While Alphabet will likely not comment on the 2024 election, the pending presidential election could remain an important backdrop with Donald Trump’s running mate J.D. Vance previously wanting to break Alphabet up.

Investors and analyst will also be looking for Alphabet to provide relevant updates on its continued growth and investments in artificial intelligence.

"We are innovating at every layer of the AI stack. Our longstanding infrastructure leadership and in-house research teams position us well as technology evolves and as we pursue the many opportunities ahead," Alphabet CEO Sundar Pichai said after second-quarter results.

GOOG Price Action: Alphabet stock trades at $168.27 on Monday versus a 52-week trading range of $123.88 to $193.30. Alphabet stock is up 21% year-to-date in 2024.

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