Alphabet shares rise as earnings crush estimates of strong cloud growth

On By Littum

Shares of Google parent Alphabet ( GOOG , GOOGL ) rose 6% in after-hours trading Tuesday as the company reported third-quarter earnings that beat analysts’ estimates on the top and bottom lines, helped by strong growth in its cloud business.

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

Analysts expected earnings per stock at $1.83 on revenue of $86.44 billion, according to data compiled by Bloomberg.

Advertising revenue topped $65.85 billion, beating analysts’ expectations of $65.5 billion, up from $59.65 billion a year ago.

Google CEO Sundar Pichai highlighted the growth of the cloud unit in an earnings call on Tuesday, noting that the company’s AI portfolio is attracting new customers and leading to bigger deals. Cloud revenue reached $11.4 billion, up 35% year-over-year, beating expectations.

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

The surge in cloud revenue comes as rivals Microsoft ( MSFT ) and Amazon ( AMZN ) are also expected to grow their cloud businesses and increase investment in AI infrastructure. Google plans to spend about $13 billion on capital expenditures for the current quarter, Chief Financial Officer Anat Ashkenazi said on the call. And the company expects another increase in spending on artificial intelligence and data infrastructure in 2025.

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

How the next generation of answer engines competes 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 sites,” Pichai said. “What’s 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 served ads that Google places alongside AI listings.