Alphabet, the parent company of Google, reported first-quarter revenue and profit that exceeded analyst expectations, driven by robust performance in its search advertising business. Revenue, after deducting partner shares, reached $76.5 billion, surpassing the forecasted $75.4 billion. Earnings per share were $2.81, significantly higher than Wall Street's estimate of $2.01. Following the earnings release, Alphabet's stock (GOOGL, Financial) rose 4.6% in after-hours trading, although it has declined 16% this year.
To justify its increased investment in artificial intelligence (AI), Alphabet aims to sustain growth in its internet search ads and cloud services. The company and its competitors are heavily investing in infrastructure, R&D, and talent amidst intensifying competition. While benefiting from AI startups' spending on cloud services, Google is also accelerating the rollout of its own AI products to compete with popular AI chatbots, which consumers are beginning to view as alternatives to Google Search.
Google's initial strategy to counter this threat includes introducing "AI summaries" and "AI modes" in search results, which use generative AI to provide concise answers before traditional search results. This approach has received mixed market feedback and has significantly reduced traffic to many independent websites.
In Q1, Google's cloud business reported an operating profit of $2.18 billion, exceeding the expected $1.94 billion, though revenue was slightly below expectations. Despite a slowdown in sales growth, Google continues to profit from its cloud division. Alphabet's capital expenditure reached $17.2 billion, slightly above the anticipated $17.1 billion.
