The CEO has faced criticism for being slow to commercialize large-scale language modeling technology, originally invented by Google researchers and popularized by OpenAI through a $13 billion partnership with arch rival Microsoft.
Alphabet's shares, trading after hours, have risen by nearly a third this year, giving it a market capitalization of $2.26 trillion, making it the world's fourth-most valuable public company after Apple, Microsoft and Nvidia.
Advertising revenue, which accounts for the majority of Google's revenue, rose 11% to $64.6 billion, in line with consensus estimates.
But growth slowed from the previous quarter, disappointing analysts. YouTube advertising revenue rose 13% to $8.7 billion, while Google Cloud services grew 29% to $10.3 billion.
The results “were not as convincing as the first quarter. [the earnings] “The beats were more broad-based,” Jefferies analyst Brent Till said. “It wasn't anything to get excited about.”
Google is one of the first of the so-called “Magnificent Seven” tech companies to report earnings, and its results are closely watched for signs of how its massive spending on generative AI is translating into revenue growth.
Alphabet's capital expenditures increased again to $13 billion, up $1 billion from the previous quarter and nearly double the $6.9 billion expected for the same period in 2023.
That reflects a surge in investment in data centers, new chips for training and running AI models, and the development of its own suite of AI products called “Gemini.”
“We are in the early stages of a very transformative space. In technology, during times of transition like this, the risks of underinvesting are dramatically greater than overinvesting,” Pichai told analysts.
“There are far more significant drawbacks to not investing in leading the way here.”
Pichai claimed that Google's generative AI services for customers have already generated “billions of dollars” in new revenue and are used by 2 million developers.
AI's rocky start
Still, Google has gotten off to a rocky start in its efforts to integrate AI into its products.
When AI-generated summaries were first introduced into US search results, they told users that eating rocks was good for their health, advised them to put cheese on their pizza and called former US President Barack Obama a Muslim.
The earnings came a day after Google abandoned its proposed $23 billion acquisition of Israeli cybersecurity company Wiz, which would have been the company's largest acquisition ever.
Directors of both companies were concerned about winning approval from U.S. antitrust regulators. Financial Times report.
As news leaked that talks were underway, skeptics intensified their lobbying against the agreement, ultimately causing it to be scrapped.
Chief Financial Officer Ruth Porat declined to comment on why the talks fell apart but said Google would continue to pursue opportunities to diversify its portfolio “if we find the right combination of factors, including value.”
She added: “Regulatory scrutiny is not new to us and we have successfully managed regulatory review of a number of significant transactions in the past.”
The company announced a second-quarter dividend of 20 cents per share, totaling approximately $2.5 billion.
The payout follows Google's first dividend payment earlier this year and marks a break from its previous policy of only using stock buybacks to return capital to investors.
Porat added that Google plans to invest another $5 billion in Waymo, the self-driving taxi service that recently expanded from San Francisco to Phoenix, Los Angeles and Austin.
By Stephen Morris in San Francisco. Additional reporting by Nicholas Megaw
© Financial Times
