Google's AI push pays off with solid second quarter, but doubts about company's future persist

Key Points

• Alphabet’s Q2 earnings beat forecasts with revenue of $96.4 billion (up 14%) and EPS of $2.31 (up 19%), underpinned by its AI-driven growth strategy.
• Google’s search ad revenue rose 12% to $54.2 billion as it rolled out AI features like AI Mode and AI Overviews, enhancing user engagement and monetization.
• Google Cloud revenue jumped 32% year-over-year to $13.6 billion, reflecting surging demand for AI computing power amid investor scrutiny of its large AI investments.
• The company faces escalating antitrust risks after a judge deemed its search engine an illegal monopoly—potential remedies include a forced sale of Chrome—while boosting its capex budget by $10 billion to counter AI competitors like OpenAI.

SAN FRANCISCO (AP) — Google’s accelerating shift into artificial intelligence helped propel its corporate parent to another quarter of solid growth while a crackdown on its internet empire looms in the background.

The results released Wednesday for the April-June period provided the latest sign that Google is deftly navigating the technological landscape’s tilt toward AI while still capitalizing on well-worn techniques that have made it the internet’s main gateway for the past quarter century.

That balancing act helped Google parent Alphabet Inc. earn $28.2 billion, or $2.31 per share, during the second quarter, a 19% increase from the same time last year. Revenue climbed 14% from a year ago to $96.4 billion. Both figures easily eclipsed analysts' projections.

“We had a standout quarter, with robust growth across the company. We are at the leading frontier of AI," Alphabet CEO Sundar Pichai boasted.

But Google's aggressive push into AI is forcing Alphabet to dig even deeper into its coffers to pay for the data centers, chips and other components required to power the technology, prompting the Mountain View, California, company to raise its budget for capital expenditures by an additional $10 billion to $85 billion.

That spending increase disclosed in the quarterly report initially spooked investors, causing Alphabet's stock to dip in Wednesday's extended trading, despite the financial gains that appear to be flowing from the AI investments. But as Alphabet executives elaborated on Google's AI progress and made other reassuring remarks during a Wednesday conference call, the stock price reversed course and rose by more than 2% in extended trading.

Google is upping the ante as part of its effort to fend off intensifying competition from AI startups such as OpenAI's ChatGPT and Perplexity. Besides those threats, a federal judge who declared Google's search engine to be an illegal monopoly is now weighing a range of countermeasures that include requiring the sale of its popular Chrome browser.

The performance covered a stretch that saw Google bring even more AI technology into its search engine in an effort to maintain its dominance, including the May release of its own version of a conversational answer engine called AI Mode.

That addition supplemented its more than year-old use of extensive summaries called AI Overviews that Google now frequently highlights at the top of its results page while decreasing the number of its traditional links to other websites.

The shake-up has resulted in even more interaction with Google’s search engine and steady earnings growth to support Alphabet’s $2.3 trillion market value, said Jim Yu, chief executive of BrightEdge, a firm that analyzes search trends.

Google's search-driven ad revenue totaled $54.2 billion in the past quarter, a 12% increase from the same time last year.

“All this AI stuff is not slowing Google down, they are doing a very good job of evolving with the times,” Yu said.

The AI boom has also been fueling demand in Google’s Cloud division that sells computing power and other services. Google Cloud continued to thrive in the past quarter with revenue rising 32% from a year ago to $13.6 billion. The division is under pressure to deliver robust growth from investors to help justify Google’s huge investments in AI technology.

While Google seems to be making a relatively smooth albeit expensive transition into the AI age, it still could be jolted by the denouement of an antitrust case brought by the U.S. Justice Department nearly five years ago. Besides considering a possible breakup of Google, U.S. District Judge Amit Mehta is also considering whether to ban the deals that Google has been making for years to lock itself in as the go-to search engine on smartphones and personal computers in addition to forcing it to share much of the data that it has accumulated about people's queries with its rivals. The judge has indicated he will issue a ruling before Labor Day.

Although Google plans to launch an appeal after Mehta’s ruling, the cloud of uncertainty has weighed on Alphabet’s stock while other tech giants betting big on AI such as chip maker Nvidia, Microsoft and Meta Platforms have seen their market values soar. Alphabet's shares ended Wednesday's regular trading session up by less than 50 cents so far this year.