letter Thursday’s earnings report faces concerns about the growth of its core Google advertising business and the company’s ability to earn profits from its huge investment in artificial intelligence.
For now, at least, the company has put to rest Wall Street’s concerns.
Alphabet beat analysts’ expectations, reporting revenue growth of 15% for the quarter, its fastest expansion since early 2022.
There have been questions about the future of Google’s online advertising, as the biggest revenue driver remains search, which faces challenges as new generative AI services like OpenAI’s ChatGPT provide consumers with new ways to get information. pressure.
“We’re very pleased with the momentum in our advertising business,” Alphabet Chief Financial Officer Ruth Porat said on an earnings call Thursday following the report. “There was broad-based growth in search volume.”
Alphabet shares soared 12% in after-hours trading, pushing the company’s market value to more than $2 trillion.Prior to this report, the stock was up 12% this year, leading the Nasdaq Composite but lagging some of its larger peers, such as Yuan, Nvidia and Amazon.
First-quarter results showed growth in the core advertising business is reaccelerating after a difficult 2022 and 2023, when brands cut spending in response to rising interest rates and inflation concerns. Growth is spreading across the entire digital advertising market, with Meta reporting 27% growth in the first quarter, the fastest rate since 2021. break Reported growth was 21%, the highest level since early 2022.
Alphabet has been aggressively cutting costs since last year in anticipation of slower advertising growth and higher spending on artificial intelligence, a field in which competition has intensified rapidly. The company has also experienced a series of glaring missteps related to its rush to launch various artificial intelligence products.
There are other reasons to be skeptical ahead of Alphabet’s earnings report.
Investors turned to Meta following its first-quarter report on Wednesday, sending the stock down as much as 19% in after-hours trading. Chief Executive Mark Zuckerberg said on an investor call that although 98% of Meta’s revenue comes from advertising, he plans to spend billions of dollars investing in areas such as artificial intelligence and the Metaverse.
Like Meta, Alphabet is investing heavily in artificial intelligence. But its investments are turning into sales.
Revenue from Google Cloud, which hosts much of the company’s artificial intelligence technology, rose 28% year-over-year to $9.57 billion, beating expectations.Operating income more than quadrupled to $900 million, a sign that Google has poured money into the business over the years to keep up with Amazon Web Services and Microsoft sky blue.
Last month, Alphabet announced a series of products, including Vertex AI, a no-code console for enterprise companies to build their own artificial intelligence agents.
“There were a lot of issues last year, but we were always confident and confident that we could improve the user experience,” Chief Executive Sundar Pichai said on Thursday’s earnings call.
Pichai said he has “preliminary confirmation” that the company can use artificial intelligence to expand search capabilities, and has promoted it in the United States and the United Kingdom. Tool monetization.
To show the company’s confidence in its financial position, Alphabet announced its first quarterly dividend of 20 cents per share and plans to repurchase an additional $70 billion in stock.
With first-quarter results in the rearview mirror, Alphabet now must keep up with higher expectations, which will only increase as competitors launch our more generative AI products. The company still has a few quarters of growth left to match its weakest performance on record.
Prabhakar Raghavan, senior vice president of search operations, said at a recent all-hands meeting that “we are facing a new cost reality” and urged employees to work faster.
Raghavan added that with generative AI, the company is “investing heavily in machines,” and said organic growth is slowing and the number of new devices entering the world “isn’t what it used to be.”
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