Google’s parent company, Alphabet, reported in its third-quarter financial report that its AI-driven cloud business grew by 35%, surpassing market expectations and igniting investors’ optimism about the profitability of AI. As a result, major tech stocks in the US soared on Tuesday, with the Nasdaq index closing at a new high.
According to Alphabet’s Q3 earnings report, the revenue reached $88.27 billion, a 15% increase compared to the same period last year, exceeding Wall Street’s expectations of $86.3 billion. This growth was mainly due to the explosive growth of its AI-driven cloud business and significant growth in digital advertising revenue.
Following the release of the Q3 report, Alphabet’s stock, GOOG, closed at $171.14 (+1.66%) and surged nearly 6% to $181.22 after-hours. The stock has risen 22.63% year-to-date.
The report also revealed that Alphabet’s net profit reached $26.3 billion in the third quarter, a 34% increase from the previous year. Adjusted earnings per share were $2.12, a 37% increase and 13.6% higher than the market’s expectation of $1.85. The AI-driven cloud business division, Google Cloud, experienced the highest growth, with a 35% increase to $11.4 billion, surpassing analysts’ expectations of $10.86 billion. This is also the fastest growth rate in eight quarters. Alphabet stated that its AI infrastructure and generative AI products have both achieved growth.
Google’s advertising business remains Alphabet’s largest source of revenue, with third-quarter revenue of $65.86 billion, a 10.4% increase compared to the same period last year. The second-largest source of revenue is Google Search, with revenue of $49.39 billion, a 10.9% increase.
CEO Sundar Pichai stated in the earnings conference call, “Our long-term focus and investment in AI are paying off and driving success for the company and our customers.” He also mentioned that Google has reduced the cost of AI answers in search by over 90% in the past 18 months through hardware, engineering, and technological breakthroughs. Additionally, the company has doubled the scale of Gemini. Alphabet has also made significant investments in new forms of energy, including nuclear energy, to prepare for the future demands of AI advancements. The company also relies on AI to improve work efficiency, with Pichai stating that over a quarter of Alphabet’s new computer code is written by AI.
Ido Caspi, a research analyst at Global X ETFs, pointed out that although Google ranks third in the market, it still has room for growth on par with Amazon and Microsoft. He also believes that the increasing workload of enterprise AI will continue to improve Google’s cloud business revenue.
Alphabet’s impressive performance this quarter highlights the growing profitability of its AI business, which to some extent dispels market doubts about the AI business model and profitability, and reignites confidence. However, the profitability of AI applications still needs to be tested.
This week, five out of the “Big Tech Seven” companies will announce their earnings reports. In addition to Alphabet, Meta and Microsoft plan to release their reports on October 30, while Amazon and Apple will do so on October 31. These reports are crucial for Wall Street’s optimism towards the technology and AI sectors.
It is also worth noting that on October 29, the four major US indices saw mixed results. However, driven by the surge in major tech stocks, the Nasdaq index reached a new closing high, with a gain of 145.56 points or 0.78% to close at 18,712.75. The Philadelphia Semiconductor Index also rose by 120.51 points or 2.31% to close at 5,332.17. The S&P 500 index rose by 9.4 points or 0.16% to close at 5,832.92, while the Dow Jones Industrial Average fell by 154.52 points or 0.36% to close at 42,233.05.
Investors expect the market to become more volatile in the coming weeks due to the earnings season, ongoing tensions in the Middle East, and the US presidential election on November 5, followed by a Federal Reserve monetary policy meeting on November 7.