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Alphabet’s revenues jumped 14 per cent in the second quarter, with double-digit growth in advertising suggesting that AI chatbots like OpenAI’s ChatGPT have not yet made a dent in queries on its dominant search engine.
Even stronger growth in its cloud computing business demonstrated the rapacious demand for computing and data services as Big Tech companies and start-ups race to build large language models and integrate AI into their businesses.
Revenues rose to $84.7bn from $74.6bn in the three months to June, the Google’s parent company said on Tuesday, beating the average analyst’s estimate of $84.2bn. Net income was $23.6bn, up 28 per cent in the same period a year earlier, again narrowly exceeding expectations.
The performance “shows tremendous ongoing momentum in search and great progress in cloud, with our AI initiatives driving new growth”, said chief executive Sundar Pichai. The CEO has faced criticism for moving too slowly to commercialise large-language model technology, which was originally conceived by Google researchers but was popularised by OpenAI, backed via a $13bn partnership with arch-rival Microsoft.
Alphabet’s stock, which fluctuated in after-hours trading, has risen by almost a third this year, giving it a market capitalisation of $2.26tn and making it the world’s fourth most valuable listed company behind Apple, Microsoft and Nvidia.
Advertising revenue — which accounts for the vast majority of Google’s top line — grew 11 per cent to $64.6bn, matching consensus forecasts. However, the growth rate slowed from the previous quarter, disappointing analysts. Ad revenue on YouTube rose 13 per cent to $8.7bn, while Google Cloud’s services business saw a 29 per cent increase to $10.3bn.
The results “were not as convincing as in Q1, when [the earnings] beat was broader”, said Jefferies analyst Brent Thill, saying they contained “no excitement”.
Google is one the first of the so-called Magnificent Seven technology companies to report, making its earnings closely watched for signs of how the sector’s vast spending on generative AI is translating into increased revenue.
Alphabet’s capital expenditure rose again to $13bn, $1bn more than in the prior quarter and almost double the $6.9bn spent in the same period in 2023. That reflects a surge in investment in data centres, new chips to train and run AI models and development of its own suite of AI products, called Gemini.
“We are in the early stage of a very transformative area. In tech when you are going through transitions like this . . . the risk of underinvesting is dramatically higher than overinvesting,” Pichai told analysts. “Not investing to be in the front here has a much more significant downside.”
Pichai claimed that Google’s generative AI services for customers were already generating “billions” in new revenue and being used by 2mn developers.
Still, Google has had a bumpy start to its efforts to integrate AI into its products. When AI-generated overviews were first rolled out in US search results, they told users that eating rocks could be healthy, advised them to glue cheese to pizza and called former US president Barack Obama a Muslim.
The earnings came a day after Google abandoned a proposed $23bn acquisition of Israeli cyber security company Wiz, which would have been the biggest in its history.
Board members on both sides had concerns about securing approval from US antitrust regulators, the Financial Times reported. When news of the advanced discussions leaked, the sceptics intensified lobbying against the deal, ultimately killing it.
Chief financial officer Ruth Porat declined to comment on why the talks collapsed, but said Google would continue to pursue opportunities to diversify its portfolio “if we find the right combination of factors, including value”.
“Regulatory scrutiny is not new for us, and we have successfully managed regulatory reviews of many large deals in the past,” she added.
The company said it would pay a second-quarter dividend of 20 cents a share worth about $2.5bn. The payout follows Google’s first dividend earlier this year, breaking with a past policy to only use share buybacks to return money to investors.
Porat added that Google would invest another $5bn in its self-driving taxi service Waymo, which recently expanded its operations from San Francisco to Phoenix, Los Angeles and Austin.
Additional reporting by Nicholas Megaw
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