GoogleParent company Alphabet's first-quarter revenue and profit exceeded analysts' expectations, benefiting from the continued strong performance of its search advertising business. Alphabet's first-quarter revenue, excluding partner revenue, was $76.5 billion, higher than analysts' average estimate of $75.4 billion. Earnings per share were $2.81, far exceeding Wall Street expectations of $2.01.
After the earnings report was released, Alphabet's stock price rose 4.6% in after-hours trading. The company's stock price has fallen 16% so far this year.
To justify its increased investment in artificial intelligence (AI), Alphabet needs to maintain growth momentum in its Internet search advertising and cloud businesses. Faced with increasing competition, the company and its rivals are investing heavily in infrastructure, research and development and talent. While Google has benefited from spending by AI startups on cloud services and business tools, it is also accelerating the rollout of its own products that can compete with popular AI chatbots. Consumers have begun to view these AI tools as alternatives to Google search.
Google's initial plan to deal with this threat is to launch "AI summaries" and "AI modes" in search results, which use generative AI to provide summary answers before search results. This approach has received mixed market responses. At the same time, the AI transformation of Google search has also led to a significant reduction in traffic to many independent websites.
Google Cloud's first-quarter operating profit was US$2.18 billion, higher than analysts' expectations of US$1.94 billion, but revenue was slightly lower than expected. The results suggest that even if sales growth in the cloud business slows, Google may still be able to make more profits from it.
Alphabet is still investing heavily in artificial intelligence. Capital expenditures reached $17.2 billion in the first quarter of this year, slightly higher than analysts' expectations of $17.1 billion.
investment income
Alphabet's first-quarter profit rose to $34.5 billion, including $8 billion in unrealized gains from an investment in a private company. According to people familiar with the matter, this company is SpaceX founded by Musk.
Alphabet has been a significant investor in SpaceX since 2015. At that time, it and Fidelity Investments jointly invested $1 billion in SpaceX, acquiring a total of about 10% of the shares. In December last year, SpaceX and its investors reached a deal to buy internal shares, which valued SpaceX at about $350 billion.