Google’s Bet on A.I. Search and Cloud Is Paying Off
Alphabet (GOOGL) finished its second quarter strong as Google’s parent company goes all-in on A.I. The tech giant generated $84.74 billion in total revenue in the April-June quarter—up 14 percent year-over-year—which blew past Wall Street’s estimates. Net income rose to $23.62 billion from $18.37 billion last year—driven by strong growth in Google’s search and cloud businesses.
“Our strong performance this quarter highlights ongoing strength in Search and momentum in Cloud,” Alphabet and Google CEO Sundar Pichai said in a press release. “We are innovating at every layer of the A.I. stack. Our longstanding infrastructure leadership and in-house research teams position us well as technology evolves and we pursue the many opportunities ahead.”
Google Search—the bulk of Alphabet’s quarterly revenue – saw its revenue climb to $48.51 billion in the past quarter from $42.63 billion the year prior. That growth comes, in part, from the integration of Google’s large language model, Gemini, into its search engine. In May, Google launched AI Overviews, a feature that answers user queries with A.I.-generated answers. The feature was initially mired with controversy after some users caught it spewing questionable, inaccurate information. In one instance, it suggested a pizza recipe made with glue and claimed that dogs have played in the NBA.
“With A.I., we are delivering better responses on more types of search queries and introducing new ways to search,” Pichai said on yesterday’s earnings call. “We are pleased to see the positive trends from our testing continue as we roll out AI Overviews, including increases in search usage and increased user satisfaction with the results.”
Google Cloud generated $10.3 billion in revenue, up 29 percent from the same quarter last year, as the demand for A.I. infrastructure and generative A.I. tools like Google Workspace, Vertex AI and AI Studio hosted on its servers continues to grow. Google Cloud customers include Uber (UBER), Walmart, and Goldman Sachs (GS).
“Our A.I. infrastructure and generative A.I. solutions for Cloud customers have already generated billions in revenues and are being used by more than 2 million developers,” Google’s CFO Ruth Porat said on the earnings call. The “majority of our top 100 customers,” she noted, are “already using our generative A.I. solutions,” adding that Alphabet continues to “invest aggressively in the business.”
On top of that, YouTube ad revenue was up 13 percent year-over-year. Brand advertising on YouTube continued to see strong momentum, with large advertisers across verticals like retail, entertainment, telecommunications and home and personal care partnering with creators, Google’s chief business officer, Philipp Schindler, said on the call. Direct response marketing on YouTube also grew, as Google continues to make it easier for brands to display ads on content like YouTube Shorts which the company said is seeing increased viewer engagement.
Google saw Network revenue and headcount decline
Despite growth in key areas, Alphabet saw a drop in revenue in Google Network, a group of websites where Google Ads can appear, and the company’s overall number of employees in the wake of a series of layoffs last quarter. The attempt to acquire Wiz, a cybersecurity company that would’ve been Google’s largest acquisition to date, wasn’t mentioned on the call.
Looking ahead, CEO Pichai said the AI Overviews will expand into more countries, respond to more queries, and include shopping ads. Alphabet also said it will invest $5 billion into the self-driving car company Waymo. More updates to the Android and Pixel smartphones, which will include Gemini, will be announced at an upcoming event in August. “As I spoke about last quarter, we are uniquely well positioned for the A.I. opportunity ahead,” Pichai said.