Google rides high on ads, AI cloud services, parent company Alphabet beats Q2 revenue, profit estimates

Alphabet, Google’s parent company, has reported better-than-expected revenue and profit for the second quarter, driven primarily by a surge in digital advertising sales and a robust demand for its cloud computing services.

However, the company has indicated that its capital expenditures are expected to remain high for the rest of the year.

A strong showing
The strong performance in digital advertising was fueled by major events such as the Paris Olympics and elections in several countries, including the US.

Furthermore, a recovery in corporate spending has also boosted Alphabet’s software business, particularly through the adoption of Generative AI, which significantly boosted its cloud operations.

Advertising sales, which is Alphabet’s primary revenue stream, increased by 11 per cent to $64.6 billion. The company’s net income for the quarter ended June 30 saw a substantial rise of 28.6 per cent, reaching $23.6 billion, surpassing the average estimate of $22.9 billion.

Investors react
Despite the positive financial results, investor reactions were mixed. Alphabet’s shares initially rose by about 2 per cent but later dipped by a similar percentage. Nonetheless, the shares have seen a significant increase of over 30 per cent this year, outpacing the tech-heavy Nasdaq Composite Index’s 20 per cent rise.

Alphabet’s total revenue grew by 14 per cent to $84.74 billion, exceeding analysts’ consensus estimate of $84.19 billion according to LSEG data. The YouTube division also saw a 13 per cent increase in ad sales, reaching $8.67 billion.

The cloud computing services segment, a key indicator of enterprise technology spending health, experienced a 28.8 per cent revenue increase, totalling $10.35 billion, surpassing analysts’ expectations of $10.16 billion.

Alphabet reported capital expenditures of $13 billion for the June quarter. Ruth Porat, in her final conference call as Alphabet’s CFO, informed investors that capital expenditures for the remaining quarters of 2024 would be at or above $12 billion. This comes after a significant 91 per cent increase in capital expenditure to $12 billion in the first quarter, which had previously alarmed investors.

Google’s AI gambit
However, Alphabet’s AI experiments have not been without setbacks. Some AI searches produced embarrassing results, such as the suggestion to use glue on pizza to hold the cheese, leading to a temporary pullback in May to refine the technology.

CEO Sundar Pichai assured investors that the AI technology would be rolled out to more countries and expanded for various use cases. He also hinted that AI products might soon drive revenue directly, rather than merely enhancing cost-cutting and efficiency.

Despite facing increased regulatory scrutiny, Alphabet has been active in pursuing acquisitions. The company was involved in negotiations for a $23 billion acquisition of cybersecurity firm Wiz, but Wiz opted to go public instead.

Additionally, Alphabet walked away from talks to acquire customer relationship management firm HubSpot, a deal that would have positioned it against competitors like Salesforce and Oracle.

In a notable reversal, Google decided to retain third-party cookies in its Chrome browser after initially planning to phase them out. This change was prompted by advertisers’ concerns about the impact on their ability to collect and analyze data for personalized ads.

Sales from Alphabet’s “other bets,” including experimental projects and its self-driving car unit Waymo, rose 28 per cent to $365 million. Porat announced a planned multi-year $5 billion investment in Waymo, as competitor Cruise works to regain a foothold on U.S. roads following a high-profile accident in October.