Alphabet Shares Surge After Strong Q3 Earnings Boosted by Cloud Revenue

Alphabet Inc., the parent company of Google, reported stronger-than-expected third-quarter earnings, which sent its shares up by nearly 6% in after-hours trading.

Alphabet’s robust performance was driven largely by surging revenue from its cloud division and strategic AI investments.

Earnings Exceed Expectations

Alphabet reported earnings per share of $2.12, surpassing analysts' expectations of $1.85. Quarterly revenue also came in ahead of forecasts at $88.27 billion, compared to the $86.30 billion predicted by LSEG.

These earnings reflect a 15% year-over-year revenue increase, a notable improvement over last year’s growth rate.

The company’s advertising business, a critical revenue stream, generated $65.85 billion, up from $59.65 billion in the same period last year. Alphabet’s Google search segment alone contributed $49.4 billion, a 12.3% increase year-over-year.

Cloud Revenue Soars on AI Demand

Alphabet’s Google Cloud revenue surged to $11.35 billion, a 35% increase from $8.41 billion a year ago.

This cloud growth exceeded Wall Street estimates, reflecting strong demand for the company’s artificial intelligence (AI) solutions within its enterprise customer base.

CEO Sundar Pichai attributed these gains to Alphabet’s “full-stack” AI products, which are increasingly embedded across Google’s ecosystem and are widely adopted by users.

YouTube advertising revenue also beat analysts’ forecasts, with revenue reaching $8.92 billion. Chief Business Officer Philipp Schindler highlighted the role of AI in improving YouTube’s recommendation systems, resulting in more personalized content for viewers.

Cost-Cutting Through AI Integration

Newly appointed CFO Anat Ashkenazi, who joined Alphabet from Eli Lilly, outlined plans to continue cost-cutting initiatives through AI.

This strategy aims to streamline workflows, optimize staffing, and manage the company’s physical footprint. Ashkenazi indicated that AI-powered efficiencies will free up resources for more strategic investments.

Ashkenazi stated that she is also evaluating where Alphabet can further accelerate these measures to create more opportunities for growth.

Alphabet’s Gemini language model has contributed to efficiency improvements in both search and ad recommendations, enhancing performance across platforms like YouTube and Google Workspace.

Expansion and Reorganization Efforts

Alphabet’s “Other Bets” division, which includes Verily and Waymo, reported revenue of $388 million, up from $297 million last year. Waymo recently closed a $5.6 billion funding round to support its robotaxi services in Los Angeles, San Francisco, and Phoenix, with plans to expand into additional cities.

The company also implemented significant leadership changes this quarter. Prabhakar Raghavan, formerly head of Google’s search and ad businesses, was replaced by Nick Fox, previously involved with Google Assistant.

Meanwhile, Google’s consumer-facing AI products, including the Gemini app, are now under the supervision of Demis Hassabis, head of Google DeepMind.

Looking Forward

Alphabet’s strong Q3 performance sets an optimistic tone as the tech sector enters a big week of earnings announcements, with reports from Meta, Microsoft, Apple, and Amazon expected later this week.