Google-Parent Alphabet Rides Cloud Demand, Ad Boost To Surpass Q2 Expectations

Google-Parent Alphabet Rides Cloud Demand, Ad Boost To Surpass Q2 Expectations

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Alphabet, the parent company of Google, surpassed expectations in its second-quarter profits, with a notable surge in demand for its cloud services and a rebound in advertising. Following the impressive results, shares rose by 8 per cent in after-hours trading. In a significant leadership change, Ruth Porat, the long-time CFO of Alphabet, will assume a new role, leaving her position to be filled by a new finance chief. The strong performance in the second quarter is attributed to the steady demand for Alphabet’s cloud services and a resurgence in advertising. Rival companies such as Microsoft and Meta Platforms, heavily reliant on ad sales, also reported their results, with Meta Platforms’ shares increasing by up to 2 per cent.

As reported by Reuters, Thomas Monteiro, a senior analyst at Investing.com, praised Google’s exceptional earnings per share, which exceeded expectations, indicating a potential new growth phase for the company. He highlighted Google’s consolidation in the competitive cloud sector, providing ample opportunities to expand further in the field of artificial intelligence (AI).

Starting September 1, Ruth Porat will take on the roles of chief investment officer and president, leading 2024 planning while her successor as CFO is sought. Porat has been instrumental in Alphabet’s remarkable growth since joining in 2015 from Morgan Stanley.

The future of AI is a focal point for Alphabet, as generative AI software capable of lengthy user responses is anticipated to be the next leap for Big Tech. Alphabet has been actively introducing AI products and revamping its search engine to incorporate generative AI. However, these advancements come with a considerable investment in servers and AI computing.

Advertising continues to be the primary revenue driver for Alphabet, with its revamped search engine now incorporating ads powered by AI. The company is exploring effective ad formats and placements within its AI-powered search. Approximately 80 per cent of advertisers currently use at least one AI-driven search product.

Google Cloud, one of the leading cloud service providers, performed exceptionally well in the second quarter, with revenue reaching $8.1 billion, surpassing expectations. Analysts predict that cloud business growth will strengthen towards the end of the year as macro uncertainty clears.

Investors expect AI to be a significant growth driver for cloud businesses within a year, with Microsoft’s Azure leading the way, followed by Amazon’s AWS and Google Cloud.

While AI and cloud services are crucial for Alphabet’s future, ad sales remain dominant. Revenue from Google’s YouTube video service unit saw a 4.4 per cent increase, reaching $7.67 billion.

Overall, Alphabet reported a net profit of $1.44 per share for the April-June period, surpassing estimates, and generated revenue of $74.6 billion, exceeding expectations.

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