Google parent Alphabet Inc. reported third-quarter sales that climbed more than analysts expected, helped by robust demand for cloud computing services from companies racing to develop or adopt artificial intelligence.
Revenue, excluding partner payouts, increased to $74.6 billion, surpassing the $72.9 billion analysts predicted on average, according to data compiled by Bloomberg. Net income was $2.12 per share, the company said Tuesday in a statement, compared with estimates of $1.84 per share.
As its main search business matures, Google is betting on growth from its cloud division, which supplies computing power, software and services to other companies. Google is drawing more cloud customers using its artificial intelligence expertise to gain ground on larger rivals Amazon.com Inc. and Microsoft Corp., making inroads by signing on fast-growing AI startups — some of which were founded by former Googlers — as clients.
“In cloud, our AI solutions are helping drive deeper product adoption with existing customers, attract new customers and win larger deals,” Alphabet Chief Executive Officer Sundar Pichai said in the statement.
Google shares rose more than 5% in extended trading following the report. The stock has gained 21% this year.
Sales in the cloud division jumped to $11.4 billion, compared to the $10.8 billion analysts projected. Google is third in the market, after Amazon and Microsoft, but there is room for all three players to grow as companies invest in AI, Ido Caspi, a research analyst at Global X ETFs, wrote in an email. “Increasing enterprise AI workloads will continue to bolster cloud revenues,” Caspi wrote.
The company is also making progress in addressing investor concerns about the billions it spends on AI, on infrastructure, research and more. Pichai said on a conference call with investors after the report that Google reduced the cost of giving AI answers in search queries by over 90% in 18 months, “through hardware, engineering, and technical breakthroughs,” while doubling the size of Gemini, the generative artificial intelligence model powering the answers.
Google is also investing heavily in new forms of power, including nuclear, to handle the future load of AI’s technological progress, Pichai said. And it’s leaning on the technology to work more efficiently: More than a quarter of Alphabet’s new computer code is written by AI, Pichai said.
Alphabet’s Other Bets, an eclectic collection of nascent businesses including the self-driving car effort Waymo and the life sciences unit Verily, reported $388 million in revenue, up from $297 million in the year-ago quarter. Waymo, which Alphabet has poured money into for more than a decade, has been rapidly expanding the number of rides it offers in cities like San Francisco and Phoenix. The company said last week it had raised $5.6 billion, its largest-ever funding round.
The Other Bets division remains unprofitable, losing $1.1 billion in the quarter, but Alphabet has been working to narrow those losses. Ruth Porat, Alphabet’s former longtime CFO who famously instilled a greater spirit of fiscal discipline in the company, recently transitioned into a new role as president and chief investment officer. She is expected to focus more on overseeing the company’s Other Bets portfolio.
While Google builds its prominence in the AI industry, the US government is evaluating its major successes — search and digital advertising — for antitrust harm. In August, a US judge declared Google’s search business an illegal monopoly. The Justice Department and a group of states also allege that Google has monopolized the market for advertising technology tools used by websites and advertisers to buy and sell online display ads.
On the earnings call with investors, Pichai warned that the US government’s resolution of the antitrust cases could have “unintended consequences” for US leadership in tech.
Either way, “it’s very clear that Google can perform even in the midst of serious regulatory threats to its ads business,” said Evelyn Mitchell-Wolf, digital advertising and media analyst at Emarketer.
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