Google's Dominance in AI Search is Irreplaceable: Q3 Results Just Confirm It
2min read Under the intense AI arms race, whoever has the stronger model and monetization channels will be the king, and surely Google is one of them. Google's parent company Alphabet just reported astonishing Q3 results, driven by AI-fueled advertising and cloud growth, clearing the shadows cast by previous antitrust concerns and intensified competition in AI search engines.
The stock surged nearly 6% in after-hours trading.
Here are the results:
Revenue: $88.27 billion, up 15% year-over-year, surpassing the expected $86.3 billion. AI monetization propelled growth, accelerating from last year's 11% growth rate.
Net Income: $26.3 billion, up 34% year-over-year, or 2.12 EPS, or 36% y/y. AI contributed to profitability and efficiency improvements, leading to a growth rate significantly outpacing revenue.
With the overall ad market recovering and AI search engines and personalized recommendations gaining traction, Google's core advertising business is facing a resurgence. Specifically, Google Search & Other brought in $49.4 billion in revenue, up 12% year-over-year; YouTube ads revenue was $8.9 billion, also up 12%. Though Google Network looked less promising, with revenue of $7.5 billion, down 2% year-over-year, due to lesser AI enhancement. Overall, Google's advertising revenue reached $65.8 billion, up 10% year-over-year.
During the earnings call, Chief Business Officer Philipp Schindler noted that AI is improving YouTube's recommendation capabilities. The large language model Gemini enables YouTube to "recommend more relevant, fresher, and personalized content to the viewer."
Another major highlight is Google Cloud, which reported $11.35 billion in revenue, up 35% year-over-year, accelerating from last quarter's 29% growth, and exceeding the expected $10.88 billion. The strong performance in the cloud business was attributed to its AI products, including enterprise customer subscriptions. Google Cloud Platform, the company's data management and AI suite, saw growth that outpaced the cloud unit's growth during the quarter, Ashkenazi added. CEO Sundar Pichai mentioned on the call that the company's full stack of AI products is now operating at scale, being utilized by billions of Google's users, creating a virtuous cycle.
Google's robust earnings report also set a positive tone for other tech giants. Meta, which also focuses heavily on AI and advertising, saw its stock rise more than 2% in after-hours trading, while Microsoft's stock gained over 1%. Both companies are set to release their earnings on Wednesday, followed by Apple and Amazon on Thursday.
The early results of Google's AI strategy have not only started to bloom but have also laid the foundation for a new growth trajectory for tech giants through AI. Nvidia has echoed this sentiment, suggesting that large cloud customers' expenditures on computing power chips will yield greater returns. Google plans to increase its capital expenditures next year compared to this year. CFO Anat Ashkenazi stated that future efficiency would be further enhanced through the use of AI to streamline workflows, manage headcount, and optimize the company's physical footprint.
Ashkenazi, who joined Google in June after a long tenure at Eli Lilly, remarked, "I plan to build on these efforts but also evaluate where we might be able to accelerate work and where we might need to pivot to free up capital for more attractive opportunities."
Aside from advertising and cloud services, Google's investments in other areas also showed promising results. The Other Bets segment, including the life sciences division Verily and the autonomous driving division Waymo, reported $388 million in revenue for the third quarter, up 31% year-over-year.
Last week, Waymo completed a $5.6 billion Series C funding round to expand its autonomous taxi service beyond its current operations in Los Angeles, San Francisco, and Phoenix. Compared to Tesla, Waymo has established a more mature presence in the California market, paving the way for future scalability.
Overall, Google's latest earnings report has reassured the market: despite the intense competition in search, advertising, and AI, the company's fundamentals remain strong, and its AI monetization strategy is progressing smoothly. Compared to other tech giants, Google's valuation has faced some challenges this year, with a current P/E ratio of just 25 times. The question now is, can this earnings report restore market confidence in Google.
