Google parent Alphabet (GOOG, GOOGL) reported second-quarter earnings after the close of trading on Tuesday, with its cloud business continuing to perform well and the company beating analysts’ expectations in both revenue and profit, with operating profit surpassing the $1 billion mark for the first time.
The company posted fourth-quarter earnings of $1.89 a share on sales of $84.7 billion. Analysts had expected earnings of $1.85 a share on sales of $84.3 billion, according to data compiled by Bloomberg. That’s up 31 percent and 14 percent, respectively, from the same period last year, when the company reported earnings of $1.44 a share on sales of $74.6 billion.
Ad revenue topped $64.6 billion, beating analysts’ expectations of $64.5 billion, and up from $58.1 billion last year. YouTube ad revenue, however, fell short of expectations, with the division earning $8.66 billion compared with the $8.95 billion forecast.
Alphabet’s shares were flat immediately after the announcement.
Google’s cloud revenue was $10.35 billion and operating profit was $1.17 billion, beating analysts’ expectations of $10.1 billion and $982.2 million in operating profit, and above the $8 billion in revenue and $395 million in operating profit that the company reported for Q2 2023.
Alphabet shares are up 30% so far this year. Rivals Microsoft (MSFT) and Amazon (AMZN) are up 18% and 22%, respectively, so far this year. All three companies are pouring money into building out generative AI capabilities, investing heavily in data centers that can run the AI models they make available through their cloud-services platforms.
In the second quarter, Alphabet reported spending $2.2 billion on building AI models across its DeepMind and Google Research organizations, up from $1.1 billion in the second quarter of 2023. It remains unclear when AI will start generating revenue for Google’s cloud business, much less its advertising segment.
“It’s still too early to expect any benefits from AI. [companies] Still in pilot mode, material AI [revenue] “This is likely to occur in 2025-26,” Jefferies analyst Brent Till wrote in a recent client note ahead of Alphabet’s earnings release.
Google is still finding its footing with AI Overview, a generative AI feature that appears at the top of the Google search results page. The company rolled out the search feature in May, but users quickly noticed that its answers weren’t always accurate. Now-famous answers included putting glue on your pizza or eating a rock every day. Google responded by pulling back some of its generative AI features.
While Alphabet is investing in AI, it is also cutting back in other areas, such as headcount: Its headcount fell to 179,582 employees in the second quarter, down from 181,798 in the same period last year.
Contact Daniel Howley at dhowley@yahoofinance.com. Follow him on X. Daniel Howley.
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