Google: AI investment pays off as cloud drives revenue growth

Google’s parent company, Alphabet , reported increased revenue in the third quarter due to its strong performance in its Google Cloud division.

In its third-quarter trading update, the company posted revenue of $88.3bn (£67.8bn), a 15 per cent increase from the second-quarter.

However, growth at the firm’s core advertising business lagged the wider group.

The total revenue for the firm’s ad arm increased by 10.4 per cent year-on-year.

Search advertising revenue and Youtube ad sales both jumped 12.2 per cent. Ad revenue hit $49.9bn (£38.3bn) and Youtube revenue hit $8.9bn (£6.8bn).

As Matt Britzman, senior equity analyst at Hargreaves Lansdown, said: “This is arguably Alphabet’s biggest question mark, as the major unknown is what happens to Google search in the world of AI. This quarter was important as it marked the first full period where Google’s AI overviews were up and running in the US.”

Ben Barringer, tech analyst at Quilter Cheviot, said: “While threats are very present in the background, Alphabet continues to innovate and improve its offerings to customers in what is a buoyant digital advertising market”.

Alphabet’s costs jump on AI spending

Alphabet’s costs also increased. The parent company spent $13.1bn (£10.1bn) on capital expenditures, a 62 per cent jump from last year.

Alphabet’s Chief financial officer, Anat Ashkenazi, said the company expected capital spending to increase substantially in 2025 to balance heavy AI investment with cost control.

Barringer continued: “As we look forward, we are working to balance our investments in AI and other growth areas with the cost discipline needed to fund those investments.”

Alphabet’s reported net income rose to $26.3bn (£20.2bn), an increase of 33.6 per cent from the third quarter last year.

Following the release, Alphabet’s stock jumped 5 per cent in after-hours trading.

Tech analyst at Quilter Cheviot, Ben Barringer, said: “Given the medium and long-term threats at play for Alphabet- the Department of Justice and AI agents – these are a very clean set of numbers.

Britzman concluded: “[Alphabet] hasn’t disappointed. cloud growth was strong, and better than expected, which continues to support the argument that the major cloud providers are well-placed to benefit from the AI revolution.”

Shares in the tech giant have returned 22.6 per cent this year.