Alphabet (GOOGL)the parent company of Google (GOOGL)surprised Wall Street yesterday (October 29) with better-than-expected financial results for the July-September quarter. The technology conglomerate saw its revenue rise 15% year-on-year to $88.3 billion, while its net profit jumped 34% to $26.3 billion. Alphabet shares jumped more than 5 percent this morning.

More than half of Alphabet’s revenue came from Google Search, which brought in $49.3 billion for the quarter, up from $44 billion during the same period in 2023. The company started earlier this year to experiment with generative AI in its search engine with the introduction of AI. -generated research summaries. Known as AI Overviews, the feature rolled out to more than 100 new countries this week and is expected to reach more than 1 billion users on a monthly basis, according to the CEO. Sundar Pichai. “We’re seeing strong engagement, which is increasing overall search usage and user satisfaction,” Pichai said on the earnings call, adding that people are “asking longer and more complex questions.”

AI is also changing the way Google engineers work. More than a quarter of new code at Google is currently generated by AI, according to Pichai, who noted that the code is then reviewed and accepted by employees. “It helps our engineers do more and move faster,” the CEO said.

Google Cloud revenue jumped 35% to $11.4 billion in the quarter.

Alphabet’s “Other Bets” division, which includes the self-driving company Waymo and drone delivery service Wing, generated $388 million in revenue, up from $297 million last year.

Waymo, which earlier this month raised $5.6 billion to fund its U.S. expansion, flies more than a million miles completely autonomously and takes more than 150,000 paid trips on a weekly basis , according to Pichai. Waymo currently operates in parts of San Francisco, Phoenix, Los Angeles and Austin.

YouTube generated $8.9 billion in ad revenue during the quarter, representing a 12% year-over-year increase. The video platform integrates Google’s Gemini AI model to improve recommendations and user experience. These models “have a deeper understanding of video content and viewer preferences” and “can recommend more relevant, fresher and personalized content to the viewer,” it said. Philip Schindler, Commercial Director of Google, during the results call.

Alphabet doubles its investments in AI

Like other Big Tech players, Alphabet is spending furiously to keep up with its AI ambitions. The company’s capital spending increased 62% year-over-year to $13 billion, with Alphabet forecasting a similar figure for the next quarter. The majority of these investments have been in data centers, chips and other networking equipment.

In the last quarter, Alphabet announced $7 billion in planned investments in data centers alone, including $6 billion in the United States. To help meet the company’s electricity demand, it also recently revealed plans to acquire nuclear energy from multiple reactors is expected to eventually produce up to 500 megawatts, which Pichai described as part of Alphabet’s “bold investments in clean energy.”

Despite high-flying financial figures, Alphabet continues to face many challenges. The main ones are pending antitrust claims from the US Department of Justice (DOJ) regarding Google’s alleged monopoly in online advertising. “We plan to vigorously defend these cases,” Pichai told analysts, adding that “some of the early proposals from the DOJ, etc., have been far-reaching — I think they could have unintended consequences, particularly about the vibrant tech sector and America’s leaders there.