Alphabet tempers fears that it’s falling behind in AI with blowout first-quarter results

Alphabet
went
into
its
earnings
report
on
Thursday
facing
concerns
about
the
growth
of
its
core
Google
ads
business
and
the
company’s
ability
to
generate
profits
from
its
hefty
investments
in
artificial
intelligence.

For
the
time
being
at
least,
the
company
put
Wall
Street’s
fears
to
rest.

Alphabet

topped
analysts’
estimates,
reporting
revenue
growth
of
15%
for
the
quarter,
the
fastest
rate
of
expansion
since
early
2022.
Ad
sales
at
YouTube
jumped
20%,
also
beating
expectations.

Questions
have
been
swirling
about
the
future
of
Google’s
online
ads,
because
the
biggest
revenue
driver
remains
search,
which
is
under
pressure
as
new
generative
AI
services
like
OpenAI’s
ChatGPT
offer
consumers
new
ways
to
access
information.

“We’re
very
pleased
with
momentum
of
our
ads
businesses,”
Alphabet
finance
chief
Ruth
Porat
said
on
Thursday’s
earnings
call
after
the
report.
“Search
had
broad-based
growth.”

Alphabet
shares
jumped
12%
in
extended
trading,
pushing
the
company’s
market
cap
past
$2
trillion.
Prior
to
the
report,
the
stock
was
up
12%
for
the
year,
ahead
of
the
Nasdaq
Composite
but
trailing
some
mega-cap
peers
like


Meta,


Nvidia
and


Amazon.

First-quarter
results
showed
the
core
advertising
business
is
reaccelerating
after
a
difficult
2022
and
2023,
when
brands
reeled
in
spending
to
contend
with
rising
interest
rates
and
inflationary
concerns.
Growth
is
spread
across
the
digital
ad
market,
with
Meta
reporting
27%
growth
for
the
first
quarter,
the
fastest
since
2021,
and


Snap
reporting

growth
of
21%,
a
level
not
seen
since
early
2022.

Alphabet
has
been
on
a
cost-cutting
spree
since
last
year
in
anticipation
of
slower
ad
growth
and
increased
spending
on
AI,
where
competition
has
grown
rapidly
in
the
last
year.
The
company
has
also
experienced
a
series
of
apparent

missteps
tied
to
the
rushed
launch
of
various
AI
products.

There
were
other
reasons
for
skepticism
ahead
of
Alphabet’s
earnings
report.

Investors
turned
on
Meta
after
its
first-quarter
report
on
Wednesday,
sending
the

stock
down
as
much
as
19%
in
extended
trading.
CEO

Mark
Zuckerberg
opened
the
investor
call
saying
he
planned
to

spend
billions of
dollars
investing
in
areas
like
artificial
intelligence
and
the
metaverse,
even
though
Meta
counts
on
advertising
for
98%
of
its
revenue.

Like
Meta,
Alphabet
is
pouring
money
into
AI.
But
its
investments
are
turning
into
sales.

Revenue
in
Google
Cloud,
which
houses
much
of
the
company’s
AI
technology,
jumped
28%
from
a
year
earlier
to
$9.57
billion,
sailing
past
estimates.
Operating
income
more
than
quadrupled
to
$900
million,
showing
that
Google
is
finally
generating
substantial
profits
after
pouring
money
into
the
business
for
years
to
keep
up
with
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
user
experience,”
CEO
Sundar
Pichai
said
on
Thursday’s
earnings
call.

Pichai
said
he’s
seen
“early
confirmation”
that
the
company
can
use
AI
to
expand
search’s
capabilities,
citing
rollouts
in
the
U.S.
and
the
U.K.
He
said
the
company
can
both
manage
spending
and
monetize
AI
tools
at
the
same
time
in
the
coming
quarters.

To
show
how
confident
the
company
is
in
its
financial
position,
Alphabet
announced
its
first-ever
quarterly

dividend
of
20
cents
per
share
and
a
plan
to
repurchase
an
additional
$70
billion
in
stock.

With
first-quarter
results
in
the
rearview
mirror,
Alphabet
now
has
to
keep
up
with
heightened
expectations,
which
will
only
increase
as
competitors
roll
out
more
generative
AI
products.
The
company
also
only
has
a
couple
more
quarters
in
which
growth
will
be
comparable
to
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,
saying
organic
growth
is
slowing
and
the
number
of
new
devices
coming
into
the
world
“is
not
what
it
used
to
be.”