Google's Parent Says AI Spending Is Paying Off

Google parent company Alphabet Inc. posted stronger-than-expected results for its second quarter, a sign that its massive artificial intelligence spending spree is paying off so far and advertising revenue is coming in strong. The California-based company said Wednesday it earned $112.11 billion, or $9.11 per share, in the April-June period. That's up from $28.2 billion, or $2.31 per share, in the same period a year earlier. Revenue grew 24% to $119.8 billion from $96.43 billion. Cloud computing revenue jumped 82% year-on-year, while search revenue was up 17%.

• Analysts, on average, were expecting revenue of $117.06 billion, according to a poll by FactSet. Google did not disclose an adjusted earnings figure that's comparable to analysts' expectations, which was $2.88 per share. Google saw a net gain of $98 billion, mainly as a result of gains on its equity investments—mostly in SpaceX, which went public in June.

• The company said capital expenditure was up 100% year-on-year to $44.9 billion, CNBC reports. Alphabet said the full-year spend could be as high as $205 billion. "Our AI investments are redefining what's possible across every part of our business," said CEO Sundar Pichai in a statement.
• Emarketer analyst Nate Elliott called the results "impressive," especially in regards to AI, the AP reports. "On the consumer side, Gemini is now within a whisker of becoming Google's third different 1 billion-user consumer AI product, alongside AI Overviews and AI Mode," he said. "On the enterprise side, AI demand is driving enormous growth in the cloud business."
• "Continued strong growth in search advertising backs up Google's claim that AI is additive to search, not a replacement," Elliott said. Analysts have raised concerns about whether Google's AI Overviews, which provide AI-generated summaries of search results, can be monetized in the same way as regular search results, the Wall Street Journal reports.

As usual, digital ads fueled by Google's dominant search engine propelled the quarter's revenue growth, boosted by World Cup advertising, especially on YouTube. The tech giant said the strong growth in its cloud business was boosted by its AI portfolio consisting of chips, models, data, security, and agent platforms. Investors did not appear to be impressed by the results: Alphabet's stock, which dipped 1.2% earlier Wednesday, dropped more than 4% in after-hours trading.