Alphabet beat second-quarter revenue and profit estimates on Tuesday, boosted by a rise in digital ad sales and healthy demand for its cloud computing services, but noted that capital spending will remain high for this year.
Alphabet’s results underscore strong demand for digital advertising, driven by events such as the Paris Olympics and elections in several countries, including the US, while a recovery in enterprise spending is boosting its software business.
Strong adoption of generative artificial intelligence technology pushed its business into the cloud.
Advertising sales, Alphabet’s main source of revenue, rose 11% to $64.6 billion. The company sells ads in its search product using customer data to better target them.
Net income in the quarter ended June 30 rose 29% to $23.6 billion, besting the average estimate of $22.9 billion.
Investor reaction was mixed, with shares initially rising around 2% before sinking by a similar percentage. They had gained more than 30% this year, outpacing a 20% rise in the tech-heavy Nasdaq Composite Index.
“This was another stellar quarter from Google with beats across the board,” said Ido Caspi, a research analyst with Global X, citing ad sales and AI offerings as drivers.
Total revenue rose 14% to $84.74 billion, compared with analysts’ consensus estimate of $84.19 billion, according to LSEG data. Ad sales in its YouTube division rose 13% to $8.67 billion.
Revenue from cloud computing services, a widely followed barometer of the health of enterprise technology spending, rose 28.8% to $10.35 billion. Analysts had expected $10.16 billion.
Alphabet reported capital expenditures of $13 billion in the June quarter. Ruth Porat, in her last conference call as Alphabet’s chief financial officer, told investors that quarterly capital spending for the rest of 2024 would be at or above $12 billion.
In the January-March period, the company’s capital spending had risen 91% to $12 billion, spooking investors.
Like its competitors, Alphabet is racing to roll out AI offerings as investors continue to pour billions into the technology.
But his research with AI has produced a number of embarrassing results, such as the widely mocked suggestion to put glue on pizza to hold the cheese better. Google pulled the technology back in May to fix the problems.
The technology will roll out to more countries, Alphabet CEO Sundar Pichai told investors in a call on Tuesday. “You’ll see us expand the use cases around it.”
Pichai, without giving a timeline, said AI products could soon drive revenue rather than simply helping companies through cost reductions and greater efficiency.
Despite the increased regulatory scrutiny, Google had pursued its biggest acquisition ever, a roughly $23 billion acquisition of cybersecurity firm Wiz. But Wiz told employees on Monday that he was walking away from the deal and would instead pursue going public.
Google also held talks to buy customer relationship management firm HubSpot before walking away from it earlier this month. The deal would have turned Alphabet into a rival to Salesforce, Oracle and others in that market.
Google said Monday that it plans to keep third-party cookies in its Chrome browser’s fallback feature after years of promising to phase out small packages of code used to track web searches.
It marked a major reversal after advertisers expressed concerns that losing cookies would limit their ability to collect and analyze information to personalize ads, making them dependent on Google’s user databases.
Sales for the Mountain View, California-based company’s so-called “other bets,” including experimental projects and its Waymo self-driving car unit, rose 28% to $365 million. Porat said the company is planning a multiyear $5 billion investment in Waymo as rival Cruise slowly charts a course back on US roads after a highly publicized accident in October.
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