Alphabet's stock rose as earnings crash estimates on strong cloud growth
Shares of Google parent Alphabet ( GOOG , GOOGL ) rose 6% in after-hours trading Tuesday as the company reported fiscal third-quarter earnings that beat analysts' estimates on the top and bottom lines, helped by strong growth in its cloud business.
The search giant reported earnings per share of $2.12 on revenue of $88.27 billion for the quarter ended Sept. 30. That represents a 37% and 15% increase in profit and sales, respectively, from the same period last year.
Analysts were expecting earnings per share of $1.83 on revenue of $86.44 billion, according to data compiled by Bloomberg.
Advertising revenue topped $65.85 billion, up from $59.65 billion in the year-ago period, versus analysts' expectations of $65.5 billion.
Google CEO Sundar Pichai highlighted growth in the cloud unit in an earnings call on Tuesday, noting that the company's AI portfolio is attracting new customers and leading to bigger deals. Cloud revenue came in at $11.4 billion, up 35% from the same period last year, beating expectations.
“This business has real momentum, and the overall opportunity is growing as consumers embrace generics. AI,” he said.
Rivals Microsoft ( MSFT ) and Amazon ( AMZN ) are expected to grow their cloud businesses and increase investment in AI infrastructure as cloud revenue grows. Google plans to spend roughly $13 billion on capital expenditures for the current quarter, CFO Anat Ashkenazi said on the call. And the company expects another surge in AI and data infrastructure spending in 2025.
Google faces competition on its home turf with the introduction of increasingly sophisticated AI-powered chatbots. Data reported Monday that Meta ( META ) is building its own search engine to run its Meta AI chatbot, providing users with conversational answers to their questions and prompts.
How the next generation of Answer Engine competes with Google's traditional and AI-boosted search remains a key question for the company.
Pichai frames the expansion of AI search tools to enhance user experience. AI Overview, Google's search feature that provides concise answers to user queries, has now reached 1 billion users on a monthly basis, the company announced on Monday.
“People are asking longer and more complex questions and exploring a wider range of websites,” Pichai said. “What's particularly exciting is that this growth actually grows over time as people learn that Google can answer more of their questions.”
As with legacy search results, users are shown ads that Google AI puts alongside the overview.
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