Google parent Alphabet beat third-quarter revenue and profit expectations on Tuesday, helped by a 35% increase in its AI-enabled cloud business as well as an increase in its digital advertising revenue.

Alphabet shares, which closed 1.8% higher on Tuesday, were up 4.4% in after-hours trading. The stock is up nearly 22% this year, in line with the broader market.

CEO Sundar Pichai said investments in AI were “paying off” through usage and sales in its search and cloud businesses.

Perceived as slow to catch up with its Big Tech rival Microsoft in the AI ​​race, Google has strengthened its Gemini AI Chatbot and work on further enhancements to its AI-powered search offering. The company continues to invest heavily in AI.

Its new CFO, Anat Ashkenazi, responded to her first analyst call and said Alphabet’s capital spending in 2025 would be higher than this year.

In the third quarter, Alphabet’s investments increased 62% to $13 billion. The fourth quarter should be similar, she said.

Google’s cloud platform revenue reached $11.35 billion, beating analysts’ estimate of $10.86 billion.

This was the fastest pace of growth in eight quarters, thanks to companies doubling their spending on the cloud, which is essential to making artificial intelligence technologies work.

“I think it was an impressive quarter, because the fact that Google Cloud was able to more than offset the decline in search is a testament to both the growing importance of cloud revenue and the fact that the company continues to diversify its revenue base,” said Bob O’Donnell, president of TECHnalysis Research.

Google has rolled out ads in AI Previews, which uses generative AI to summarize content from a range of sources and display concise results for search queries.

Analysts said users believe the company’s new AI tools are more effective than before – a significant improvement from earlier this year, when the feature drew heavy criticism for the display inaccurate answers, including pizza recipe containing glue as an ingredient.

Alphabet also beat expectations with earnings of $2.12 per share, compared to the market average estimate of $1.85, according to LSEG.

Digital advertising sales – the largest share of Alphabet’s total revenue – increased from $59.65 billion to $65.85 billion. This includes YouTube ad sales which increased 12% to $8.92 billion, but slowed from the second quarter.

Google’s dominance in the digital advertising market has helped attract marketing dollars even as TikTok and Amazon make inroads with marketers. Quarterly results also benefited from increased political spending in the run-up to the presidential election and the 2024 Paris Olympics, which ended in August.

Social media company Snap, which also relies on advertising, released good news for shareholders, beating Wall Street targets for quarterly revenue and user growth, sending its shares higher 6% after hours.

Alphabet’s total revenue rose 15% to $88.27 billion in the July-September period, compared with analysts’ average expectations of $86.30 billion, according to LSEG data.