Alphabet was angered by concerns that it was lagging behind in AI with explosive first-quarter results

Alphabet was angered by concerns that it was lagging behind in AI with explosive first-quarter results

into its earnings report on Thursday faced concerns about the growth of Google’s core ad business and the company’s ability to generate profits from its big investment in artificial intelligence.

For now at least, the company is putting Wall Street’s fears to rest.

Alphabet topped analyst estimates, reporting revenue growth of 15% for the quarter, the fastest rate of expansion since early 2022. Ad sales on YouTube jumped 20%, also beating expectations.

Questions have swirled about the future of Google’s online ads, as the biggest revenue driver remains search, which is under pressure as new generative AI services like OpenAI’s ChatGPT offer users new ways to access information.

“We’re very pleased with the momentum of our ad business,” Alphabet chief financial officer Ruth Porat said on Thursday’s earnings call after the report. “Search has broad-based growth.”

Alphabet shares jumped 12% in extended trading, pushing the company’s market cap past $2 trillion. Before the report, the stock was up 12% for the year, leading the Nasdaq Composite but trailing some mega-cap peers such as Meta
, Nvidia
and Amazon
.

First-quarter results show the core advertising business is gaining momentum after a difficult 2022 and 2023, when brands struggled to spend in the face of rising interest rates and inflation concerns. Growth was spread across the digital ad market, with Meta reporting 27% growth for the first quarter, the fastest since 2021, and Snap
reported growth of 21%, levels not seen since early 2022.

Alphabet has been cutting costs since last year in anticipation of slower ad growth and increased spending on AI, where competition has grown rapidly in the past year. The company has also suffered a series of apparent missteps related to the hasty launch of various AI products.

There are other reasons for skepticism ahead of Alphabet’s earnings report.

Investors turned on Meta after its first-quarter report on Wednesday, sending shares down as much as 19% in extended trading. CEO Mark Zuckerberg opened the investor call by saying that he plans to spend billions of dollars investing in areas like artificial intelligence and the metaverse, even though Meta relies on advertising for 98% of its revenue.

Like Meta, Alphabet is pouring money into AI. But the investment turned into a sale.

Revenue in Google Cloud, which houses most of the company’s AI technology, jumped 28% from a year earlier to $9.57 billion, beating previous estimates. Operating income more than quadrupled to $900 million, indicating that Google is finally turning a profit after years of pouring money into the business to compete with Amazon Web Services and Microsoft
Azure.

Last month, Alphabet announced a suite of products, including Vertex AI, a code-free console for enterprise companies to build their own AI agents.

“There were a lot of questions last year and, you know, we always felt confident and comfortable that we would be able to improve the user experience,” CEO Sundar Pichai said on Thursday’s earnings call.

Pichai said he had seen “early confirmation” that the company could use AI to expand search capabilities, citing a launch in the U.S. and U.K. He said the company could manage expenses and monetize AI tools at the same time in the coming quarters.

To show how confident the company is in its financial position, Alphabet announced its first quarterly dividend of 20 cents per share and plans to repurchase an additional $70 billion in stock.

With first-quarter results in the rearview mirror, Alphabet now has to contend with high expectations, which will only increase as competitors launch more generative AI products. The company also only has a few more quarters in which growth will match some of its weakest results on record.

“We are in a new cost reality,” said Prabhakar Raghavan, a senior vice president overseeing search, at a recent all-party meeting, urging workers to work more efficiently.

With generative AI, the company is “spending more on machines,” Raghavan added, saying organic growth is slowing and the number of new devices coming into the world “isn’t what it used to be.”