Shares of Alphabet (GOOG, GOOGL) fell more than 4% on Wednesday as investors closely watched the company’s increased spending on AI. YouTube’s disappointing ad revenue also became a sore point for investors following parent company Google’s latest quarterly results.
Yahoo Finance’s Dan Howley reports:
Google’s parent company, Alphabet (GOOG, GOOGL), reported earnings for its fiscal second quarter after the market closed on Tuesday, beating analysts’ estimates for both revenue and profit. The company’s cloud business continues to grow, and for the first time, it surpassed $1 billion in operating profit.
For the quarter, the company saw earnings of $1.89 per share on revenue of $84.7 billion. Analysts had expected earnings of $1.85 per share on revenue of $84.3 billion, according to data compiled by Bloomberg. That’s a jump of 31% and 14%, respectively, from the year-ago period, when the company reported earnings of $1.44 per share on revenue of $74.6 billion.
Advertising revenue topped $64.6 billion, compared with analysts’ expectations of $64.5 billion, and rose from $58.1 billion a year ago. However, YouTube’s ad revenue lagged, with the segment bringing in $8.66 billion, compared with expectations of $8.95 billion.
Google posted cloud revenue of $10.35 billion and operating income of $1.17 billion, beating analyst expectations of $10.1 billion and operating income of $982.2 million and ahead of the $8 billion in revenue and $395 million in operating income the company reported in Q2 2023.
Alphabet shares are up 30% year-to-date. Shares of rivals Microsoft (MSFT) and Amazon (AMZN) are up 18% and 22% year-to-date, respectively. All three companies are pouring money into building out their generative AI capabilities and are spending heavily on data centers that can power the AI models they serve up via their cloud service platforms.
In the second quarter, Alphabet reported that it spent $2.2 billion building AI models across its DeepMind and Google Research organizations, up from $1.1 billion in Q2 2023. Exactly when AI will start generating revenue for Google’s Cloud business, let alone its advertising segment, remains uncertain.
“It is too early to count on the benefits of AI, as most [companies] remain in pilot mode and material AI [revenue] is more likely a 2025-2026 event,” Jefferies analyst Brent Thill wrote in a recent note to clients ahead of Alphabet’s earnings announcement.
