Google (GOOGL) is doubling down on its investment in artificial intelligence despite investors’ concerns that its increasingly important cloud business isn’t making money fast enough. On a call with analysts yesterday (Oct. 24) following Google parent Alphabet (GOOGL)’s third-quarter earnings release, CEO Sundar Pichai mentioned the term “A.I.” 23 times as he discussed company highlights of the past three months and plans for the future. Pichai’s level of excitement almost matched that of his presentation five months ago at Google’s I/O developer conference, where he mentioned “A.I.” 27 times during a 15-minute keynote.
“We see A.I. as a foundational platform shift and are excited about the opportunities across our business,” Pichai told analysts on the call.
A central piece of Google’s A.I. strategy is online search, its largest business segment. In the past quarter, Google experimented with bringing to search new generative A.I. capabilities, such as incorporating videos and images into responses and generating imagery. User feedback was positive, Pichai said, and Google in August made these new search features available in India and Japan.
“With generative A.I. applied to search, we can serve a wider range of information needs and answer new types of questions, including those that benefit from multiple perspectives,” Pichai said.
Another area in which Google is introducing A.I. capabilities is its creativity and productivity products. In March, Google released Bard, an A.I. chatbot to compete with OpenAI’s ChatGPT. Pichai said Bard can now integrate with Google apps, including Workspace, Maps, YouTube and Google Flights and Hotels, to show users the most relevant information.
Earlier this month, Google unveiled Assistant with Bard, an A.I. personal assistant that allows users to interact with it through not only text but also voice and images. A.I. personal assistant is a product being explored by many tech companies, including Microsoft. Assistant with Bard is currently only accessible to a small group of testers and is expected to be available to the public in the coming months.
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On the call, Pichai also addresses growing concerns around the safety of A.I. applications developed by Big Tech companies. The CEO said Google is working to make it easier for users to identify A.I.-generated content online. For example, Google DeepMind has developed a technology called SynthID that adds a digital watermark directly into the pixels of A.I.-generated images, making it imperceptible to the human eye.
Google is spending more money each quarter, primarily on A.I. infrastructure. In the third quarter, Alphabet recorded $8 billion in capital expenditure, “driven overwhelmingly by investment in technical infrastructure,” including servers and data centers, “reflecting a meaningful increase in our investments in A.I. compute,” CFO Ruth Porat said on yesterday’s call.
Alphabet’s capital expenditure in the third quarter was $8 billion, up from $6.9 billion in the previous quarter. The expense was”driven overwhelmingly by investment in our technical infrastructure with the largest component for servers, followed by data centers, reflecting a meaningful increase in our investments in A.I. compute.
Pichai reaffirmed his commitment to A.I. and promises the investment will pay off. “We continue to make meaningful investments in support of our A.I. efforts. We remain committed to durably re-engineering our cost base in order to help create capacity for these investments in support of long-term sustainable financial value,” he told analysts.
Google’s strong Q3 results overshadowed by Google Cloud
For the third quarter, Alphabet reported $76.7 billion in revenue and $19.7 billion in net income (or $1.55 earnings per share). Both numbers beat analyst forecasts, and it was the first time in a year that revenue increased by double digits (11 percent).
However, Google’s cloud revenue, up 22 percent from last year to $8.4 billion, missed expectations by about $20 million, sending the company’s shares to fall more than 8 percent after the earnings.
Google Cloud competes with Amazon Web Services and Microsoft Azure. These large cloud services are increasingly important in the era of A.I. as smaller companies rely on them to run A.I. models. Pichai said more than half of all funded generative A.I. startups are Google Cloud customers, including AI21 Labs, Contextual, Elemental Cognition and Rytr.