Alphabet’s second-quarter earnings surpassed Wall Street predictions on Tuesday, and the parent company of Google announced a transition for its long-standing CFO, Ruth Porat, while they searched for a new finance chief.
Alphabet’s strong results were buoyed by steady demand for its cloud services and a rebound in advertising. In the after-hours trading, the company’s shares surged by 8%.
Conversely, shares of Microsoft, a rival firm, experienced a slight decline after its earnings report on the same day, whereas Meta Platforms, another company heavily reliant on ad sales, saw its shares rise by as much as 2%.
Thomas Monteiro, a senior analyst at Investing.com, remarked, “Not only did Google deliver exceptional earnings per share, surpassing expectations at a time when investors were skeptical about its ability to compete with other tech giants amidst the AI craze, but it also did so significantly above the projected margin. This strongly indicates that the giant is likely embarking on a new growth phase.”
He added, “Google has now solidified its position as a leading force in the fiercely contested cloud sector and is now poised to focus its expansion efforts in the AI domain.”
Ruth Porat, who joined Alphabet in 2015, is one of Silicon Valley’s prominent female executives and played a pivotal role in driving substantial growth at the company.
Effective September 1, she will assume the role of chief investment officer and president, overseeing the 2024 planning while the search for her successor commences.
Porat was recruited from Morgan Stanley, where she held the position of finance chief. In her new capacity, she will be responsible for the company’s “Other Bets” portfolio, which includes ventures involving riskier hardware and services, as well as contributing to the management of global investments.
A significant portion of Alphabet’s revenue comes from advertisers, who have been exercising caution in allocating their funds to untested platforms. This prudence has benefited both Google’s parent company and Meta Platforms, the owner of Facebook.
Alphabet’s Q2 results are particularly comforting for investors who were concerned about a potential pullback in advertising following the extraordinary growth of web services during the pandemic, as consumers returned to physical retail.
Silicon Valley has been abuzz with excitement over generative artificial intelligence software, which can provide comprehensive responses to user queries, and is believed to be the next major advancement for Big Tech.
In May, Alphabet unveiled AI products at its annual I/O developer conference and revamped its search engine to incorporate generative AI.
However, this new AI technology comes at a cost: a substantial portion of Alphabet’s capital spending in Q2 was dedicated to servers and a significant investment in AI computing, as stated by Porat during a conference call.
Chief Executive Sundar Pichai informed analysts on the call that advertising is set to be integrated into the company’s revamped search. Alphabet is currently conducting tests to identify effective ad formats and optimal placements within its AI-powered search.
Chief Business Officer Philipp Schindler mentioned during the call that presently, 80% of advertisers are using at least one AI-driven search product.
The company’s future plans involve incorporating generative AI into other products like Gmail, Google Photos, and its Android mobile operating system. Generative AI technology can produce text, images, and videos that closely resemble human creations.
Nonetheless, the latest results released on Tuesday confirm that ad sales remain dominant. Social media firm Snap was penalized by investors for its disappointing ad sales performance during the quarter.
Google Cloud, one of the largest cloud service providers, saw a 28% increase in revenue, reaching $8.1 billion, outperforming the estimated $7.75 billion and maintaining a similar growth rate as in the first quarter. Microsoft’s Azure revenue experienced a 26% increase, surpassing Visible Alpha’s growth estimate.
Industry experts and analysts predict that cloud business growth will gain momentum towards the end of the year, as macro uncertainty begins to dissipate, with the June quarter being the trough.
Investors anticipate AI to become a significant growth driver for cloud businesses within a year, with Microsoft’s Azure leading the pack, followed by Amazon.com’s AWS and Google Cloud.
Ad sales for Google’s YouTube video service unit also performed well, rising by 4.4% to $7.67 billion.
For the April-June period, Alphabet reported a net profit of $1.44 per share, exceeding the estimated $1.34 per share. Revenue for the quarter amounted to $74.6 billion, outperforming the estimated $72.82 billion, according to Refinitiv data.