Alphabet topped analyst estimates, reporting revenue growth of 15% for the quarter, the fastest rate of expansion since early 2022.
Questions are swirling about the future of Google's online advertising, as the biggest revenue driver remains search, which is under pressure as new generative AI services like OpenAI's ChatGPT provide new ways for users to access information. Presents.
“We're very pleased with the momentum of our advertising business,” said Ruth Porat, Alphabet's chief financial officer, on Thursday's earnings call after the report. “There was broad-based growth in the search.”
Alphabet shares rose 12% in extended trading, pushing the company's market cap past $2 trillion. Before the report, the stock was up 12 percent for the year, ahead of the Nasdaq Composite but trailing some megacap peers like Meta, Nvidia and Amazon.
First-quarter results showed that the core advertising business is picking up again after a difficult 2022 and 2023, when brands increased spending to counter rising interest rates and inflation concerns. Growth spanned the digital ad market, with Meta reporting 27% growth for the first quarter, the fastest since 2021, and Snap reporting a 21% increase, not seen since early 2022.
Alphabet has been on a cost-cutting drive since last year in anticipation of slower ad growth and increased spending on AI, where competition has increased sharply in the past year. The company has also experienced a series of glaring errors associated with the haste of various AI products.
There were other reasons for skepticism before Alphabet's earnings report.
Investors turned on the meta after its first-quarter report on Wednesday, sending the stock down as much as 19 percent in extended trade. CEO Mark Zuckerberg opened the investor call by saying he plans to invest billions of dollars in areas like artificial intelligence and Metaverse, even though Meta counts 98 percent of its revenue from advertising.
Like Meta, Alphabet is pouring money into AI. But his investments are turning into sales.
Revenue in Google Cloud, which houses most of the company's AI technology, rose 28 percent to $9.57 billion from a year earlier, according to previous estimates. Operating income more than quadrupled to $900 million, indicating that Google is finally turning a substantial profit after years of pouring money into the business to maintain Amazon Web Services and Microsoft Azure.
Last month, Alphabet announced a suite of products, including Vertex AI, a no-code console for enterprise companies to build their own AI agents.
“There were a lot of questions last year and, you know, we always felt confident and comfortable that we would be able to improve the customer experience,” CEO Sundar Pichai said on Thursday's earnings call.
Pichai said he had seen “early confirmation” that the company could use AI to enhance search capabilities, citing rollouts in the US and UK, adding that the company expects the same in the coming quarters. Time management of expenses and can monetize AI tools.
To show how confident the company is in its financial position, Alphabet announced a 20 cents per share increase in its first-quarter profit and a plan to repurchase an additional $70 billion in stock.
With first-quarter results in the rearview mirror, Alphabet now has to maintain high expectations, which will only increase as rivals develop more creative AI products. The company has only a few more quarters of growth to match some of its weakest results on record.
“We're in a new cost reality,” Prabhakar Raghavan, a senior vice president who oversees search, said at a recent all-hands meeting, urging employees to work more efficiently.
With generative AI, the company is “spending a ton more on machines,” Raghavan added, adding that organic growth is slowing and the number of new devices coming into the world “isn't what it used to be.”