Alphabet, the parent company of Google, reported first-quarter earnings and revenue that exceeded analyst expectations, driven by robust performance in its search advertising business. The company reported revenue of $76.5 billion, excluding partner shares, surpassing the analyst estimate of $75.4 billion. Earnings per share reached $2.81, significantly above the Wall Street forecast of $2.01. Following the earnings report, Alphabet's stock (GOOGL, Financial) rose over 3.5% in after-hours trading, although it has fallen 16% this year.
To justify its increased investment in artificial intelligence (AI), Alphabet needs to maintain growth in its internet search ads and cloud business. The company and its competitors are heavily investing in infrastructure, research, and talent amidst growing competition. Google benefits from AI startups' spending on cloud services, but it is also accelerating the launch of its AI products to compete with popular AI chatbots.
Google's initial response to the AI threat includes introducing "AI summaries" and "AI modes" in search results, which use generative AI to provide concise answers. However, this approach has received mixed reactions and has significantly reduced traffic to independent websites. In the first quarter, Google Cloud's operating profit was $2.18 billion, above the expected $1.94 billion, despite slightly lower revenue. This indicates potential profit growth even as cloud sales slow.
