Google parent Alphabet’s AI spending boosts cloud business, ad sales
By Deborah Mary Sophia and Kenrick Cai
(Reuters) – Google parent Alphabet (NASDAQ:GOOGL) topped third-quarter revenue and earnings expectations on Tuesday, helped by an AI-driven 35% surge in its cloud business as well as a jump in its digital advertising revenue.
Alphabet shares, which closed up 1.8% on Tuesday, were up 4.4% in after-hours trading. The stock has risen nearly 22% this year, in line with the broader market.
CEO Sundar Pichai said in a statement that investments in AI were “paying off” through use of and sales in its Search and Cloud businesses.
Perceived as slow to catch up with Big Tech rival Microsoft (NASDAQ:MSFT) in the AI race, Google has been beefing up its Gemini AI chatbot and working out more improvements to its AI-powered search offering. The company is continuing to spend big on AI.
Its new chief financial officer, Anat Ashkenazi, fielding her first analyst call, said Alphabet’s capital expenditures in 2025 would be higher than this year.
In the third quarter, Alphabet’s capex rose 62% to $13 billion. The fourth quarter is expected to be similar, she said.
Revenue from Google’s cloud platform grew 35% to $11.35 billion in the third quarter, beating analysts’ estimate of $10.86 billion.
It was the fastest pace of growth in eight quarters, thanks to enterprises doubling down on cloud spending, which is essential to power artificial-intelligence technologies.
“I do think it was an impressive quarter because the fact that Google Cloud could more than offset Search decline speaks both to the growing importance of cloud revenues and the fact that the company continues to diversify its revenue base,” said Bob O’Donnell, president of TECHnalysis Research.
Google has rolled out ads in AI Overviews, which use generative AI to summarize content from a range of sources and display concise results for search queries.
Analysts said users think the company’s new AI tools are more effective than previously – a significant improvement from earlier this year when the feature drew harsh criticism for displaying inaccurate answers, including a pizza recipe that listed glue as an ingredient.
Alphabet also beat profit expectations with earnings of $2.12 per share, compared with an average market estimate of $1.85, according to LSEG.
Digital advertising sales – the biggest chunk of Alphabet’s total revenue – rose to $65.85 billion from $59.65 billion. This includes YouTube ad sales that rose 12% to $8.92 billion, but which slowed from the second quarter.
Google’s dominant position in the digital advertising market has helped attract marketing dollars even as TikTok and Amazon.com (NASDAQ:AMZN) make inroads with marketers. The quarterly results also received a boost from increased political spending ahead of the U.S. presidential election, and the 2024 Paris Olympics that ended in August.
Social media company Snap, which also depends on advertising, posted good news for shareholders, topping Wall Street targets for quarterly revenue and user growth, sending shares up 6% in after-hours trading.
Alphabet’s total revenue increased 15% to $88.27 billion in the July-September period, while analysts on average expected $86.30 billion, according to LSEG data.