Alphabet posted stronger-than-expected third quarter earnings Tuesday, including an outsized surge in revenues for its flagship cloud division, as the tech giant looks to ease investor concern over a surge in capital spending on AI-related technologies.
Alphabet (GOOGL) said earnings for the three months ending in September rose 35% from last year to $2.12 per share, topping Street forecasts of $1.85 per share. Overall group revenues, the company said, rose 15% to $88.27 billion, again topping analysts' estimates of an $86.3 billion tally.
Search and other revenues rose 11% to $44.03 billion while YouTube ad sales rose by an impressive 12.4% to $7.95 billion, and came in just ahead of Street forecasts. Google cloud revenues, however, were only up were up 22.5% at $8.41 billion.
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“The momentum across the company is extraordinary. Our commitment to innovation, as well as our long-term focus and investment in AI, are paying off with consumers and partners benefiting from our AI tools," said CEO Sundar Pichai. "In Search, our new AI features are expanding what people can search for and how they search for it."
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"In Cloud, our AI solutions are helping drive deeper product adoption with existing customers, attract new customers and win larger deals. And YouTube’s total ads and subscription revenues surpassed $50 billion over the past four quarters for the first time.," he added. "We generated strong revenue growth in the quarter, and our ongoing efforts to improve efficiency helped deliver improved margins.”
The group also said its third quarter capital spending reached $13 billion, a tally it expects to be similar over the final three months of the year, as it continues to invest in AI infrastructure.
“Cloud and AI continue to be big growth drivers for Alphabet as YoY targets are exceeded by over a quarter point," said Forrester analyst Tracy Woo.
"As the company continues to remake itself as the AI leader through massive investment in cloud AI offerings and to enhance its search capabilities, expect stronger traction with cloud in the coming year,” she added.
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Alphabet shares were marked 5.5% higher in after-hours trading immediately following the earnings release to indicate a Wednesday opening bell price of $180.42 each, a move that would extend the stock's 2024 gain to around 28%.
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