Google’s parent company Alphabet on Tuesday beat expectations for third-quarter revenue and profit, helped by a 35% jump in its AI-powered cloud business and a surge in digital ad revenue.
Alphabet shares closed 1.8% higher on Tuesday and were up 4.4% in after-hours trading. The stock is up nearly 22% this year, in line with the broader market.
CEO Sundar Pichai said the company’s investments in AI are “paying off” through use and sales in its search and cloud businesses.
CEO Sundar Pichai said the company’s investments in AI are “paying off.” AFP (via Getty Images)
Google, which has been perceived as slow to catch up with Big Tech rival Microsoft in the AI race, is beefing up its Gemini AI chatbot and working to further improve its AI-powered search service. The company continues to invest heavily in AI.
New Chief Financial Officer Anat Ashkenazi said in his first analyst call that Alphabet’s capital spending in 2025 will be higher than this year.
Alphabet’s capital spending rose 62% to $13 billion in the third quarter. The outlook is similar for the fourth quarter, he said.
Revenue from Google’s cloud platform rose to $11.35 billion, beating analysts’ expectations of $10.86 billion.
This was the fastest pace of growth in eight quarters as companies doubled their cloud spending, which is critical to advancing artificial intelligence technology.
“I think it was an impressive quarter because the fact that Google Cloud more than offset the decline in search reflects the growing importance of cloud revenue and the fact that the company continues to diversify its revenue base. Because it speaks to both,” said Bob O’Donnell. President of Technalysis Research.
Revenue rose 15% to $88.27 billion, exceeding analyst expectations. AP
Google has rolled out ads in AI Overview, which uses generative AI to summarize content from various sources and display concise results for search queries.
Analysts say users believe the company’s new AI tools are more effective than before. This is a significant improvement from earlier this year, when the feature drew harsh criticism for displaying inaccurate answers, such as a pizza recipe that listed glue as an ingredient.
According to LSEG, Alphabet also beat earnings estimates, posting earnings of $2.12 per share, compared to the average market estimate of $1.85.
Alphabet’s capital spending rose 62% to $13 billion in the third quarter. We expect a similar situation in the fourth quarter. Getty Images
Digital advertising sales, which account for the largest portion of Alphabet’s total revenue, rose from $59.65 billion to $65.85 billion. This includes YouTube ad sales, which rose 12% to $8.92 billion, but slowed from the second quarter.
Google’s dominant position in the digital advertising market is helping it attract marketing dollars, even as marketers like TikTok and Amazon make inroads. Increased political spending ahead of the presidential election and the 2024 Paris Olympics, which ended in August, also boosted quarterly results.
Social media company Snap, which also relies on advertising, posted good news for shareholders after quarterly revenue and user growth beat Wall Street targets, sending its stock up 6% in after-hours trading.
Alphabet’s total revenue for the July-September period rose 15% to $88.27 billion, compared with analysts’ average estimate of $86.3 billion, according to LSEG data.
