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Google’s parent company, Alphabet, reported third-quarter earnings that exceeded analysts’ expectations across key metrics, sending its shares up nearly 6% in after-hours trading. Artificial intelligence (AI) has been a key driver of growth for the world’s largest search engine platform, with Google Cloud accelerating its performance.

CEO Sundar Pichai remarked: “The momentum across the company is extraordinary. Our commitment to innovation, as well as our long-term focus and investment in AI, are paying off, with consumers and partners benefiting from our AI tools.”

Following the earnings report, the stock is poised to hit a three-month high, having surged amid strong results, contributing to a 31% rally year-to-date.

Google Cloud accelerates growth

The highlight of the earnings report was the acceleration in Google Cloud’s growth, indicating that Alphabet’s substantial investments in the segment and its AI infrastructure are yielding results. The division generated $11.35 billion (€10.49 billion) in revenue during the third quarter, marking a 35% increase from the previous year and a 9.6% sequential rise. This is the second time the segment has surpassed the $10 billion threshold.

Google Cloud is viewed as Alphabet’s most significant business unit as it competes with Amazon and Microsoft in the rapidly growing cloud industry. The segment encompasses infrastructure and platform services, collaboration tools, and other services for enterprise clients. The widespread adoption of AI has intensified the race in cloud computing, making it a key factor in a company’s market valuation. “In Cloud, our AI solutions are helping drive deeper product adoption with existing customers, attract new clients, and secure larger deals,” Pichai noted.

YouTube ads and digital advertising growth

Google’s YouTube ad business has also gained significant momentum, with revenue reaching $8.9 billion (€8.2 billion), representing a 12% year-on-year increase despite rising competition from platforms such as Netflix, TikTok, and Amazon. Chief Business Officer Philipp Schindler mentioned during the earnings call that the company’s AI tool, Gemini, has provided YouTube users with more personalised content. Google’s overall advertising revenue rose by 10%, reaching $65.9 billion (€60.1 billion) in the third quarter, further cementing its leading position in the digital advertising market, with Meta Platforms trailing behind.

Alphabet comfortably exceeded market expectations across all the other metrics, posting total revenue of $88.27 billion (€81.6 billion) for the third quarter, a 15% year-on-year increase. Earnings per share were reported at $2.12, representing 37% annual growth, significantly surpassing the forecast of $1.85.

Additionally, Alphabet’s “Other Bets” division, which includes its self-driving vehicle service Waymo, saw revenue growth of 31%. Waymo recently completed a $5.6 billion (€5.2 billion) funding round to expand its robotaxi service beyond San Francisco, Los Angeles, and Phoenix, according to a report by CNBC last week.

Ongoing cost-cutting measures

In the second half of 2023, Alphabet began reducing its headcount and restructuring teams to shift capital towards more AI-focused divisions. According to the earnings report, the total number of employees dropped by 1,112 to 181,269 compared to the previous year. The company noted that the team behind the AI language model, Gemini, will be integrated into Google DeepMind, an AI research lab, and is “currently evaluating the potential impact the reorganisation will have on our segment operating results.”

Chief Financial Officer Anat Ashkenazi stated during the earnings call that Alphabet will continue its current cost-cutting measures and improve efficiency to redirect capital towards “more attractive opportunities.”