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Written by: Matt Britzman | Hargreaves Lansdown
- Top and bottom lines both ahead of expectations
- Strong cloud growth driven by AI
- Google search benefitting from AI overviews
Alphabet is the first major tech name to report earnings, and it hasn’t disappointed. Cloud growth was strong, and better than expected, which continues to support the argument that the major cloud providers are well-placed to benefit from the AI revolution. For Alphabet specifically, it looks like its cloud offering is much better suited to this new AI phase of growth than it was in the previous wave where Amazon’s AWS and Microsoft’s Azure fared better.
Search revenue growth was solid at 12%. This is arguably Alphabet's biggest question mark, as the major unknown is what happens to Google search in the world of AI. This quarter was important as it marked the first full period where Google’s AI overviews were up and running in the US. The solid Search revenue number and a better-than-expected performance in the US, where Search is over half of total revenue, help to back up Alphabet’s claims that it is seeing a material benefit from AI overviews.
With valuations sitting where they are, and Alphabet having multiple routes to play in the AI world, this looks an attractive name from here. Shares up 4% in after-market trading should help investors sleep tonight. The lack of a really knockout Search revenue number is likely the only reason we aren’t seeing gains closer to 10% right now.
Related: The Week Ahead: Key Insights on Big Tech Earnings and Jobs Data