(Bloomberg) — Google parent Alphabet Inc. reported second-quarter revenue that beat analysts’ expectations, helped by rising demand for its cloud-computing services and search engine advertising.
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The company said in a statement on Tuesday that second-quarter revenue, excluding payments to partners, was $71.36 billion. Analysts had expected $70.7 billion, according to data compiled by Bloomberg. Net income was $1.89 per share, beating Wall Street’s forecast of $1.84 per share.
Google was once ahead in the AI race, as it developed much of the technology underlying popular chatbots. Now the company is under pressure to prove it can compete with companies like OpenAI and Microsoft, which are pushing chatbots that are pulling people away from traditional web searches and answering users’ questions in a conversational way. Google has been rushing to build artificial intelligence into all of its widely used products, including Gmail, Google Docs and search, while also beefing up its own AI capabilities, but it’s been a costly endeavor with mixed results.
The tech giant also provides cloud-computing services to fast-growing startups, making that business steadily more profitable after years of losses.
Still, some investors are looking for clearer evidence of a return on the billions of dollars being pumped into AI advances, said Daniel Morgan, senior portfolio manager at Synovus Trust.
“How much money are they making off of that?” he said. “If you look at this report, you’ll see that Google is the same as it’s always been. They make money from advertising and search.”
Alphabet’s second-quarter capital expenditures exceeded analyst expectations as it spent $13.2 billion to support its artificial intelligence and computing power, compared with estimates of $12.2 billion.
Alphabet shares were fluctuating in after-hours trading, rising nearly 2% before falling more than 1% as of 6 p.m. New York time. The company’s shares have risen 30% this year.
Google Cloud earned $1.17 billion, beating analysts’ expectations of $982 million in operating profit. Google still lags Amazon.com Inc. and Microsoft Corp. in the cloud-computing market, but the unit has won business from artificial intelligence startups over the past year. Investors are also eyeing Google Cloud as the division most likely to drive growth for Alphabet overall, especially as its search business matures.
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“Our strength in AI, AI infrastructure and generative AI solutions for our cloud customers certainly helps,” Alphabet Chief Investment Officer Ruth Porat said in a media call. “Our customers are certainly relying on us to build out their own capabilities.”
In May, Google unveiled AI profiles for search written by its generative artificial intelligence technology, but the feature’s rollout was a mixed bag. Some of the AI profiles made embarrassing suggestions, such as advising users to eat a stone or put glue on pizza. Still, Google’s search ad revenue for the quarter was $48.5 billion, beating analysts’ average estimate of $47.6 billion.
“As long as consumers have the trouble of searching elsewhere, Google will continue to generate higher search traffic revenue than its competitors,” said Evelyn Mitchell Wolf, an analyst at eMarketer.
YouTube reported revenue of $8.66 billion, compared with the $8.95 billion that analysts had averaged expected. Of Alphabet’s various businesses, YouTube is the one most vulnerable to fluctuations in the digital advertising market.
Alphabet’s “other investments,” a collection of breakthrough business units including life sciences business Verily and self-driving car maker Waymo, earned $365 million in revenue but posted an operating loss of $1.13 billion, bigger than analysts’ projections for a loss of $1.07 billion. Alphabet has recently been pushing for these units to be spun off as independent startups rather than become divisions of the parent company.
In its latest filing, Alphabet reported that it had $100.7 billion in cash, cash equivalents and marketable investments, down from $108 billion in the first quarter.In recent months, Google has expressed interest in acquiring two companies, both of which would have been the internet giant’s largest acquisitions ever, but both deals fell apart.The acquisitions of HubSpot and Wizz were supposed to bolster the company’s cloud and cybersecurity offerings and help it compete with tech rivals.
“We are always looking for opportunities to diversify our portfolio and will continue to do so if we find the right combination of factors, including value,” Porat said, while declining to comment on the negotiations with Wizz. “Regulatory scrutiny is not new to us and we have successfully managed regulatory review of a number of larger transactions in the past.”
Later this month, veteran Eli Lilly & Co. executive Anat Ashkenazi will join the search giant as its chief financial officer. Porat, Alphabet’s longest-tenured CFO, will stay on as president and chief investment officer and spend more time considering the company’s other investment portfolios.
–With assistance from Ed Ludlow.
(Adds analyst comment in fifth paragraph)
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