Alphabet Outperforms Q2 Estimates Amid Robust Digital Ad Demand and Cloud Growth

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Alphabet Inc. (GOOGL.O) surpassed second-quarter revenue and profit expectations on Tuesday, bolstered by a surge in digital advertising sales and strong demand for its cloud computing services. However, the company noted that capital expenses would remain elevated throughout the year.

The results highlight a robust demand for digital ads, spurred by global events such as the Paris Olympics and elections in various countries, including the U.S. Additionally, a resurgence in enterprise spending is fueling growth in Alphabet’s software business.

The adoption of generative artificial intelligence technology has significantly contributed to the growth of Alphabet’s cloud business. Advertising sales, which constitute Alphabet’s primary revenue stream, increased by 11% to $64.6 billion, driven by the company’s targeted advertising strategies.

For the quarter ending June 30, net income rose by 28.6% to $23.6 billion, exceeding the average estimate of $22.9 billion. Despite this, investor reactions were mixed, with shares initially rising by about 2% before falling by a similar margin. Nevertheless, Alphabet’s stock has gained over 30% this year, outperforming the Nasdaq Composite Index’s 20% rise.

“This was another stellar quarter from Google with beats across the board,” remarked Ido Caspi, a research analyst with Global X, emphasizing the contributions from ad sales and AI offerings.

Alphabet’s total revenue grew by 14% to $84.74 billion, surpassing analysts’ consensus estimate of $84.19 billion, according to LSEG data. Ad sales in the YouTube division climbed by 13% to $8.67 billion. Revenue from cloud computing services, a critical indicator of enterprise technology spending health, increased by 28.8% to $10.35 billion, ahead of the expected $10.16 billion.

The company reported capital expenditures of $13 billion for the June quarter. Ruth Porat, in her final conference call as Alphabet’s CFO, indicated that quarterly capital expenditures for the remainder of 2024 would be at or above $12 billion. This follows a 91% increase in capital expenditures to $12 billion in the first quarter, which had concerned investors.

Alphabet is actively expanding its AI offerings, with investors pouring billions into the technology. However, the company has faced some setbacks, such as the widely ridiculed AI suggestion to put glue on pizza to better hold cheese. In May, Google paused the rollout of this technology to address these issues. Alphabet CEO Sundar Pichai assured investors that AI products would soon be expanded to more countries and hinted that AI could eventually drive revenue beyond cost-cutting and efficiency improvements.

Despite intense regulatory scrutiny, Google pursued its largest acquisition to date—a $23 billion buyout of cybersecurity firm Wiz. However, Wiz announced on Monday that it would go public instead, walking away from the deal. Additionally, Google had engaged in acquisition talks with customer relationship management firm HubSpot but also walked away from that potential deal, which would have positioned Alphabet as a competitor to Salesforce and Oracle.

In another significant development, Google announced on Monday its decision to retain third-party cookies in its Chrome browser, reversing its previous pledge to phase out these tracking tools. This move came after advertisers expressed concerns that eliminating cookies would limit their ability to personalize ads, making them more reliant on Google’s user data.

Alphabet’s revenue from its “other bets,” including experimental projects and its self-driving car unit Waymo, rose by 28% to $365 million. Porat revealed that the company is planning a multi-year $5 billion investment in Waymo, as rival Cruise seeks to return to U.S. roads following a highly publicized accident in October.

Overall, Alphabet’s strong quarterly performance underscores the resilience of its digital advertising and cloud computing businesses while highlighting the company’s strategic investments in AI and other innovative technologies.