Alphabet earnings crush estimates as cloud business expands

Google parent Alphabet (GOOG, GOOGL) reported fiscal third quarter earnings after the bell on Tuesday that beat analysts’ estimates on the top and bottom lines as its cloud business continued to expand, kicking off Big Tech earnings with a robust showing.

The search giant reported earnings per share of $2.12 on revenue of $88.27 billion for the quarter ended Sept. 30. That represents a profit and sales increase from the same period last year of 37% and 15%, respectively.

Analysts were anticipating earnings per share of $1.83 on revenue of $86.44 billion, according to data compiled by Bloomberg.

Alphabet stock climbed nearly 6% in after-hours trading Tuesday.

Advertising revenue topped $65.85 billion versus analysts’ expectations of $65.5 billion, and up from the year-ago period’s $59.65 billion.

Google CEO Sundar Pichai highlighted the growth of the cloud unit in an earnings call Tuesday, noting that the company’s AI portfolio is attracting new customers and leading to larger deals. Cloud revenue came in at $11.4 billion, up 35% from the same period last year, and surpassing expectations.

“This business has real momentum and the overall opportunity is increasing as customers embrace gen-AI,” he said.

The run up in cloud revenue comes as rivals Microsoft (MSFT) and Amazon (AMZN) are also expected to grow their cloud businesses and ramp up investments in AI infrastructure.

Google also faces competition on its home turf with the introduction of increasingly sophisticated AI-powered chatbots. On Monday the Information reported that Meta (META) is developing its own search engine to drive its Meta AI chatbot, providing users with conversational answers to their questions and prompts.

How the next generation of answer engines compete with Google’s traditional and AI-boosted search remains a key question for the company.

Pichai framed the expansion of AI search tools as boosting the user experience. AI Overviews, Google’s search feature that offers concise answers to user queries, now reaches 1 billion users on a monthly basis, the company announced Monday.

“People are asking longer and more complex questions, and exploring a wider range of websites,” Pichai said. “Whats particularly exciting is that this growth actually increases over time as people learn that Google can answer more of their questions.”

Similar to legacy search results, users are shown advertisements that Google places alongside AI Overviews.

Google is the first of the Big Tech platforms to report this week, with Meta and Microsoft set to release quarterly results on Wednesday, followed by Amazon (AMZN) and Apple (AAPL). While all the megacap have posted share price gains so far this year, the stocks have forged divergent paths as investors are no longer gauging their AI spending and the success of their business lines in lockstep.

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Hamza Shaban is a reporter for Yahoo Finance covering markets and the economy. Follow Hamza on X @hshaban.

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