Key Points
- Alphabet’s cloud revenue jumped 35% to $11.35 billion, its fastest growth in eight quarters, surpassing analyst expectations.
- The company continues to invest heavily in AI, boosting tools like the Gemini chatbot and AI-powered Search to remain competitive.
- Alphabet’s ad dominance faces scrutiny from regulators as the company navigates a more competitive digital landscape.
- Alphabet reported strong Q3 earnings, with 15% revenue growth to $88.27 billion, driven by Search, YouTube ads, and cloud growth.
Alphabet, Google’s parent company, reported strong third-quarter earnings on Tuesday, highlighting the success of its AI investments and a substantial boost in its cloud business, which grew by 35%. This performance exceeded market expectations, leading to a 6% rise in Alphabet’s shares in after-hours trading. Alphabet’s success appears to stem from sustained growth in its primary Search business, rising YouTube ad revenue, and a promising outlook for Google Cloud, which saw its fastest growth in eight quarters.
Alphabet’s core Search business recorded a 12% increase in revenue, and YouTube ads also surged, partly due to U.S. election-related spending. Analysts have noted Alphabet’s results reflect resilience and diversification amidst competitive pressures, especially as AI-driven cloud services gain traction. The company’s Q3 capital expenditures (capex) jumped 62% to $13 billion, underscoring its commitment to cloud and AI expansion. New CFO Anat Ashkenazi indicated that Alphabet’s capex would continue rising in 2025, with a similar investment level expected in the fourth quarter.
The cloud business alone generated $11.35 billion in revenue, exceeding analysts’ projections of $10.86 billion. This growth aligns with Alphabet’s AI focus as enterprises increasingly adopt AI-powered cloud solutions to drive efficiency and innovation. Alphabet has been steadily improving its AI-powered tools, such as the Gemini AI chatbot and enhanced AI-driven Search capabilities, to compete with major tech rivals, especially Microsoft. Google Cloud’s continued growth is expected to offset potential declines in digital ad revenues as the company faces mounting competition from Amazon, TikTok, and other digital platforms that are attracting advertisers.
Analysts observed that Alphabet’s AI tools are becoming more refined and effective, a notable improvement after initial criticisms regarding the reliability of generative AI in search queries. The company has also begun integrating ads within AI-generated search summaries, offering more streamlined ad placements for advertisers.
Despite Alphabet’s strong Q3 results, some analysts predict the company may lose its share in the digital ad market over the next few years due to growing competition and regulatory scrutiny. Google’s U.S. search advertising market share, projected to drop below 50% next year for the first time in nearly two decades, is facing pressure as Amazon’s ad share climbs.
Alphabet’s Q3 revenue rose 15% to $88.27 billion, beating analysts’ estimates of $86.30 billion. This year’s early release of Google’s smartphone also contributed to revenue growth, reflecting Alphabet’s diversified revenue strategy.
