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Alphabet Inc, the parent company of Google, surpassed analysts’ expectations for quarterly earnings, thanks to a strong performance by its digital advertising business. This led to an increase in share prices.
In the second quarter, revenues for Alphabet Inc rose by 7% to $74.6 billion, surpassing the estimated $72.8 billion, as reported by Refinitiv.
Despite a challenging year that resulted in significant job cuts in January, the company showed signs of resilience in its digital advertising business, with revenue from Google ads, YouTube ads, and Google Cloud surpassing forecasts. The net profit of $18.4 billion also exceeded Wall Street’s expectation of $16.9 billion.
Operating margins increased by 1 percentage point from the previous year and by 4 percentage points from the previous quarter, reaching 29%. Ruth Porat, the finance chief, attributed this margin growth to the accelerated revenue from Search ads. The majority of costs associated with the job cuts were already incurred in the first quarter.
Sundar Pichai, the CEO of Alphabet Inc, expressed excitement about the company’s momentum and the strong results of the quarter. He highlighted their continued leadership in AI and their focus on engineering and innovation to enhance their services.
Despite concerns over the cost of developing infrastructure for artificial intelligence, Alphabet Inc reported increased margins. The company acknowledged the need for continued investments in technical infrastructure to capitalize on AI opportunities, including investments in GPUs, proprietary TPUs, and data center capacity.
The executives emphasized the integration of AI throughout their portfolio, mentioning it more than 80 times during the earnings call. They highlighted its impact on improving Google Search, enhancing cybersecurity, optimizing cloud operations, developing language models, and introducing new products like Duet AI for Google Workspace.
Following the positive earnings report, Alphabet’s stock surged over 6% in post-market trading.
This year, Alphabet’s stock has already increased by 37%, giving the company a market valuation of over $1.55 trillion. However, it is still below its all-time high in November 2021 when growth for digital ads slowed across the sector.
In the quarter, Google ad revenues rose by 3.3% to $58.1 billion, surpassing the forecasted $57.5 billion. YouTube ad revenue increased by 4.4% to $7.7 billion, exceeding the estimated $7.4 billion. Google Cloud revenue jumped by 27% to $8 billion, surpassing the expected $7.8 billion.
Alphabet’s Google Cloud division, which achieved its first-ever operating profit in the previous quarter, continued its profitability with a profit of $395 million. This is a significant improvement compared to the $590 million loss recorded a year ago.
Ruth Porat’s appointment as chief investment officer was announced, recognizing her valuable contributions since 2015. She will oversee investments worldwide and in the company’s “Other Bets” portfolio, which includes Waymo, the driverless car group. The Other Bets portfolio reported a loss of $813 million in the quarter, a decrease from the $1.34 billion loss in the same period last year.
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