Alphabet’s first-quarter results ease concerns about it falling behind in artificial intelligence

the letter Thursday’s earnings report faced concerns about the company’s ability to generate profits from growth in its core Google advertising business and its massive investment in artificial intelligence.

For now, at least, the company has put Wall Street’s concerns to rest.

Letter Top analysts expect revenue to grow 15% in the current quarter, which would be the fastest expansion since early 2022. YouTube ad sales grew 20%, beating expectations.

The future of Google’s online advertising has been questioned as the biggest driver of search, which is under pressure as new AI services like OpenAI’s ChatGPT offer new ways to get information to consumers.

“We’re very pleased with the pace of our advertising business,” Alphabet Finance chief Ruth Porat said on an earnings call Thursday after the report, adding that “search volume has grown tremendously.”

Shares of Alphabet rose 12% in after-hours trading, pushing the company’s market value past $2 trillion. Prior to the report, the stock was up 12% this year, leading the Nasdaq Composite but lagging some of its larger peers, such as Yuan, Nvidia And the amazon.

First-quarter results showed growth in the core advertising business accelerating after a tough 2022 and 2023, when brands cut spending in response to rising interest rates and inflation concerns. Growth is spreading across the digital ad market, with Meta reporting 27% growth in the first quarter, the fastest pace so far in 2021. pause A reported increase of 21%, the highest level since early 2022.

Alphabet has been aggressively cutting costs since last year in anticipation of slower advertising growth and higher spending on artificial intelligence, an area where competition has intensified. The company has experienced a series of notable missteps related to the launch of various artificial intelligence products.

There are other reasons to be skeptical ahead of Alphabet’s earnings report.

Investors started paying attention to Meta after it released its first-quarter report on Wednesday. Inventory reduction up to 19% in increased transactions. CEO Mark Zuckerberg opened an investor conference call, hinting at his plan to spend billions. Although 98% of Mater’s revenue comes from advertising, there is still a lot of money invested in areas such as artificial intelligence and the Metaverse.

Like Meta, Alphabet is investing heavily in artificial intelligence. But its investments are turning into sales.

Revenue from Google Cloud, which hosts much of the company’s artificial intelligence technology, rose 28% year-over-year to $9.57 billion, beating expectations. Operating income more than quadrupled to $900 million, a sign that Google has been pouring money into the business for years to keep pace with Amazon Web Services. gave and Microsoft Sky blue.

Last month, Alphabet announced several products, including Vertex AI, a no-code console for enterprise companies to build their own artificial intelligence agents.

“There were a lot of issues last year, but we were always confident and confident that we could improve the user experience,” Chief Executive Sundar Pichai said on Thursday’s earnings call.

Pichai said he had “initial confirmation” that the company could use artificial intelligence to expand search capabilities, citing rollouts in the US and UK. In the coming quarters, he said, the company could simultaneously manage expenses and monetize through artificial intelligence tools.

In a show of confidence in its financial health, Alphabet announced its first-quarter earnings with a dividend of 20 cents per share and plans to repurchase an additional $70 billion in stock.

With first-quarter results down, Alphabet now has to meet higher expectations, which will only increase as rivals launch more generative AI products. The company still has several quarters of growth to match its weakest performance on record.

“We’re facing a new cost reality,” Search senior vice president Prabhakar Raghavan said at a recent conference. Calling employees to improve full meeting efficiency.

Raghavan added that with generative AI, the company is “investing heavily in machines” and said organic growth is slowing and the number of new devices in the world “isn’t what it used to be.”