Alphabet exceeds predictions in revenue and profit; cloud accelerates

Alphabet Exceeds Expectations with Strong Q3 Performance

Alphabet, Google's parent company, reported impressive financial results on Tuesday, surpassing Wall Street estimates for both earnings and revenue. This success is largely attributed to the company's burgeoning cloud business, which achieved over $1 billion in operating profit for the first time.

For the quarter, Alphabet achieved earnings per share (EPS) of $1.89 on revenues of $84.7 billion, beating analysts' predictions of $1.85 EPS on $84.3 billion in revenue. This marks a significant increase from the same period last year, where the EPS was $1.44 and revenue was $74.6 billion.

The company's advertising revenue also outperformed expectations, bringing in $64.6 billion compared to the anticipated $64.5 billion, and up from $58.1 billion the previous year. Despite the positive earnings report, Alphabet shares remained flat immediately after the announcement. Year to date, Alphabet's shares have risen by 30%, outperforming rivals Microsoft and Amazon, which have seen increases of 18% and 22%, respectively.

Cloud Business Gains Momentum

Google's cloud revenue reached $10.35 billion, accompanied by an operating income of $1.17 billion, surpassing analyst projections of $10.1 billion in revenue and $982.2 million in operating income. This is a significant improvement over the $8 billion in revenue and $395 million in operating income reported in Q2 2023.

Despite trailing behind Amazon and Microsoft in the cloud market, Google continues to see growth in this segment. The company is heavily investing in generative AI, which it believes will drive stronger future revenues and customer acquisitions.

Future of AI in the Balance

However, the timeline for when AI will substantially contribute to Google’s Cloud business and ad segment revenues remains uncertain. According to Jefferies analyst Brent Thill, substantial AI revenue is more likely to be realized between 2025 and 2026, as most companies are currently in the pilot phase of their AI projects.

Google is also working to improve its generative AI feature called AI Overview, which appears at the top of Google Search results pages. The initial rollout in May faced challenges as users reported inaccuracies in the AI-generated responses. Consequently, Google scaled back some of these features to refine their functionality.