A group of Microsoft Products and technologies used for sharing and managing content, knowledge, and applications.
Hi PeteVan,
We can only send SharePoint Alerts to the users that already exist in the tenant including external users. So, I would suggest you share the folder to the external user and require him/her to sign in. After he/she sign into the tenant, his/her account will appear in Office 365 admin center as User_gmail.com#EXT#@contoso.onmicrosoft.com. After that, you can create Alerts on the external user’s account.
Thanks,
Ran