Google’s parent company, Alphabet, reported in its third-quarter financial report that its AI-driven cloud business grew by 35%, exceeding market expectations. This ignited investors’ optimism about the profit potential of AI and led to a surge in large-cap tech stocks on Tuesday, with the Nasdaq closing at a new high.
According to the financial report released today (October 30th), Alphabet’s Q3 revenue reached $88.27 billion, a 15% increase compared to the same period last year, surpassing Wall Street’s expectation of $86.3 billion. This was mainly due to the explosive growth of its AI-driven cloud business and significant growth in digital advertising revenue.
Following the release of the Q3 financial report, Alphabet’s stock, GOOG, closed at $171.14 (+1.66%) on Tuesday and rose nearly 6% to $181.22 after-hours. The stock has risen 22.63% year-to-date.
The financial report also showed that Alphabet’s net profit reached $26.3 billion in the third quarter, a 34% year-on-year increase. Adjusted earnings per share were $2.12, a 37% increase compared to market expectations of $1.85, exceeding expectations by 13.6%.
The cloud business division, Google Cloud, which is driven by AI, experienced the largest growth, with a 35% year-on-year increase to $11.4 billion, surpassing analysts’ expectations of $10.86 billion. This is also the fastest growth rate in eight quarters. Alphabet stated that its AI infrastructure and generative AI products have achieved growth.
Google’s advertising business remains Alphabet’s largest source of revenue, with Q3 revenue of $65.86 billion, a 10.4% YoY growth. The second-largest revenue source is Google Search, with revenue of $49.39 billion, a 10.9% YoY increase.
CEO Sundar Pichai commented in the earnings conference call, “Our long-term focus and investment in AI are paying off and driving success for the company and our customers.” He also mentioned that Google has reduced the cost of AI answers in search by over 90% in 18 months through hardware, engineering, and technological breakthroughs. Additionally, the company has doubled the scale of Gemini. Alphabet is also heavily investing in new energy sources, including nuclear power, to address the future demands of AI advancements. The company also relies on AI to improve work efficiency, with Pichai stating that over a quarter of Alphabet’s new computer code is written by AI.
Ido Caspi, a research analyst at Global X ETFs, pointed out that although Google ranks third in the market, it still has room to grow on par with Amazon and Microsoft, and he is optimistic that the increasing workload of enterprise AI will continue to boost the company’s cloud business revenue.
Alphabet’s impressive performance this quarter highlights the growing profitability of its AI business, which to some extent dispels market doubts about the AI business model and profit potential, reigniting confidence. However, the profitability of the application side remains to be tested.
This week, five out of the “Big Tech Seven” companies will release their financial reports. In addition to Alphabet, Meta and Microsoft plan to announce their reports on October 30th, while Amazon and Apple will release theirs on October 31st. These reports are crucial for Wall Street’s outlook on the sustainability of the technology and AI sector.
It is also worth noting that on October 29th, the four major U.S. indices saw mixed movements, but with the strong performance of large-cap tech stocks, the Nasdaq closed at a new high, and the Philadelphia Semiconductor Index rose by over 2%.
The Nasdaq rose 145.56 points, or 0.78%, to close at 18,712.75 points.
The Philadelphia Semiconductor Index rose 120.51 points, or 2.31%, to close at 5,332.17 points.
The S&P 500 Index rose 9.4 points, or 0.16%, to close at 5,832.92 points.
The Dow Jones Industrial Average fell 154.52 points, or 0.36%, to close at 42,233.05 points.
Investors expect increased market volatility in the coming weeks due to the earnings season, ongoing tensions in the Middle East, and the upcoming U.S. presidential election on November 5th, followed by the Federal Reserve’s monetary policy meeting on November 7th.
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