Google Demonstrates Resilience in the Face of AI Challenges as Cloud Business Flourishes

Alphabet






has faced significant speculation this year regarding the health of its core search business. This is due to a decline in the digital advertising market and concerns about the potential impact of AI chatbots on web traffic.

In its second-quarter earnings report, Alphabet demonstrated numerous pathways to success, despite these challenges.

Google’s revenue increased by 7% to $74.6 billion in the second quarter, surpassing analysts’ expectations. Profit also exceeded projections, resulting in a 6% surge in stock price during after-hours trading.

While the online advertising market has been challenging, Google’s ad revenue saw a modest 3.3% growth compared to the previous year. This improvement is promising, given that ad revenue declined in the first quarter. In contrast, Snap’s second-quarter report was disappointing, leading to a nearly 20% drop in stock value.

During Alphabet’s investor call, Michael Nathanson from Moffett Nathanson commented on the weak performance of linear TV, ad agencies, and smaller digital companies, and praised Alphabet’s accelerated growth in the face of these challenges.

Despite concerns about the potential migration of traditional search users to AI chatbots from OpenAI and Microsoft






, Google’s search revenue, which forms the majority of its ad business, continues to grow steadily. This provides reassurance to investors and reflects the success of Google’s homegrown chatbot, Bard, which has received significant investment in recent months.

During the call, Alphabet’s executives emphasized the company’s commitment to AI, highlighting its integration across multiple areas. However, the availability of Google’s Search Generative Experience (SGE), a feature that can synthesize search results from complex queries, has yet to be announced for the general public.

Sundar Pichai, Alphabet’s CEO, expressed his belief that AI will revolutionize the future of search, enabling innovative search options and eliminating previous limitations. He cited the company’s plans to automate customer service using AI models as an example.

In addition to search, Google’s cloud infrastructure presents an opportunity for growth, especially in competition with Amazon






Web Services and Microsoft Azure. Many AI companies are leveraging Google’s cloud technology for their compute-intensive projects.

Google’s cloud business, which achieved profitability in the first quarter, experienced a 28% revenue increase in the second quarter, surpassing analysts’ estimates. Pichai revealed that over 70% of generative AI-oriented “unicorns” are Google Cloud customers, including companies like Cohere, Jasper, and Typeface.

Pichai concluded by stating that there is a growing interest from customers in AI, leading to more engagements and conversations with Google.

WATCH: This is the start of a new tech bull market, says Dan Ives