By Kenrick Cai and Akash Sriram (Reuters) -Strong AI demand helped power Alphabet's financial results, as both the core advertising and cloud computing businesses of the Google parent beat revenue
Alphabet Increases Capital Expenditures Following Strong Earnings Report
Alphabet's Financial Performance and Future Investments
By Kenrick Cai and Akash Sriram
Revenue Breakdown: Advertising and Cloud
(Reuters) -Strong AI demand helped power Alphabet's financial results, as both the core advertising and cloud computing businesses of the Google parent beat revenue expectations.
AI Demand and Competitive Landscape
Despite whispers of concerns over a developing AI bubble, the search giant boosted its projected capital expenditures for the year to between $91 billion and $93 billion.
Market Reactions and Analyst Insights
“We are investing to meet customer demand and capitalize on the growing opportunities across the company,” CEO Sundar Pichai said in Alphabet's earnings release.
Alphabet, which spent $52.5 billion in 2024, had already shocked Wall Street twice this year with its aggressive spending ambitions, first declaring a $75 billion outlay in February, and then boosting the projection to $85 billion in July.
Shares of the company rose 6% in extended trading.
The company reported total revenue of $102.35 billion for the quarter, compared with analysts' average estimate of $99.89 billion, according to data compiled by LSEG. Adjusted profit per share of $3.10 beat estimates of $2.26.
Google Cloud's 34% revenue growth helped it to remain as one of Alphabet's fastest-growing segments as it benefitted from surging enterprise demand for AI-powered infrastructure and data analytics services.
The unit posted revenue of $15.16 billion, topping estimates of $14.72 billion. The performance was boosted by burgeoning enterprise demand for its AI infrastructure, even as returns for businesses adopting the technology remain uncertain.
That is evidenced by Google Cloud's backlog of non-recognized sales contracts, which grew to $155 billion, according to Pichai. In July, Alphabet said the backlog had reached $106 billion.
The unit continues to close the gap with larger rivals Microsoft Azure and Amazon Web Services, aided by strong take-up of Vertex AI and its custom AI chips called Tensor Processing Units.
Competition in the broader AI and cloud market is intensifying, with rivals aggressively cutting prices and introducing new generative-AI capabilities.
SEARCH STEADIES
Revenue from Google's advertising business rose 12.6% to $74.18 billion, well above estimates of $71.79 billion, allaying fears of some investors and indicating that the digital ad market has remained robust in the face of economic uncertainty and intense competition.
Alphabet's advertising unit, which contributes the vast majority of the company's revenue, has been competing in a crowded field of rivals vying for more ad dollars as lower interest rates are expected to lift the economy.
"Continued strength in search is helping to dispel the negative sentiment surrounding AI’s potential impact on Google’s biggest businesses," said Matt Stucky, chief portfolio manager at shareholder Northwestern Mutual Wealth Management.
However, analysts have pointed to cautious spending from advertisers in some sectors grappling with economic uncertainty due to pressures from tariff costs and a rapidly evolving global trading landscape.
Still, Wall Street expects the company to benefit from advertisers moving away from experimental ad platforms like Snapchat and others.
Last week, Microsoft and SoftBank Group-backed OpenAI unveiled Atlas, an AI-powered browser aimed at directly competing with Google's core search engine and browser stack.
The launch, as Reuters earlier reported, represents one of the most significant challenges to Google's search dominance in years and will be a key focus for investors listening for management's response to the rising competitive threat to its most lucrative business.
Still, while the ChatGPT maker and other startups like Anthropic and Perplexity are introducing new AI-powered apps to consumers, Google's search market share appears to be steadying.
"AI Overviews and AI Mode are clearly resonating with users, helping to ease fears that Google’s core search business is under threat from generative AI," said Matt Britzman, senior equity analyst at Hargreaves Lansdown.
Alphabet reported that its number of employees stood at roughly 190,000 at the end of September, up by more than 8,000 from the same period last year. Its rival Amazon said it will lay off 14,000 workers on Tuesday.
(Reporting by Akash Sriram in Bengaluru and Kenrick Cai in San Francisco; Editing by Anil D'Silva and Matthew Lewis)
