Shares of Google LLC parent company Alphabet Inc. trading higher after hours today, following a solid profit advance driven by strong cloud revenue growth.

Alphabet’s stock rose more than 5% in extended trading, adding to the slight gain during the regular trading session.

The company reported third-quarter profit before some costs such as stock compensation of $2.12 per share on revenue of $88.27 billion, up 15% from last year. The results were better than expected. Wall Street was expecting earnings of just $1.85 per share on lower revenue of $86.3 billion.

Alphabet’s all-important Google Cloud unit generated $11.35 billion in revenue, a 35% growth from the $8.41 billion in sales reported a year earlier. The company said this growth was mainly due to the rapid updating of its artificial intelligence services, which include subscriptions to enterprise customers.

In a conference call with analysts, Alphabet Chief Executive Sundar Pichai (pictured) insisted that Google Cloud’s “full stack” AI products and services is already operational on a large scale, used by billions of people around the world and “creating a virtuous circle”.

With today’s report, Alphabet becomes the first in a series of “mega-cap” technology companies to release their latest financial results, Microsoft Corp. and Meta Platforms Inc. due to report earnings on Wednesday, with Amazon.com Inc. and Apple Inc. following on Thursday. .

The company announced that its net income reached $26.3 billion at the end of the quarter, compared to $19.7 billion for the same period a year earlier.

Google Search generated $49.4 billion in revenue during the quarter, up 12.3% from a year earlier, and remains the top contributor in terms of revenue growth, it said. Anat Ashkenazi, chief financial officer of Alphabet. She told investors the company plans to use AI to streamline workflows, manage its workforce and physical footprint in the future, as it looks to build on its previous reduction efforts costs, which included thousands of layoffs last year and several hundred others earlier this year.

“I plan to build on these efforts, but also evaluate areas where we might be able to accelerate work and areas where we might need to pivot to free up capital for more attractive opportunities “said Ashkenazi, who joined Alphabet in June after spending 23 years at pharmaceutical giant Eli Lilly Co.

Alphabet’s advertising business also grew well in the quarter, with revenue of $65.85 billion, up from $59.65 billion in the year-ago quarter, although that it has progressed at a slower rate on a sequential basis.

Within this segment, YouTube’s ad revenue came in at $8.92 billion, just above the analyst’s target of $8.89 billion, growing faster than during the previous year. previous quarter. This growth is encouraging as the Google-owned company has faced significant pressure from other advertising rivals such as Amazon, Netflix Inc. and TikTok parent Bytedance Ltd.

Philipp Schindler, Alphabet’s chief business officer, said one of the reasons for this growth is that AI helps improve YouTube recommendations. It used the larger Gemini family of language models to help recommend “more relevant, fresher, personalized content” to viewers, he insisted.

Investing.com analyst Thomas Monteiro said Alphabet’s results can be seen as an indicator of what’s to come from the other big tech stocks expected to report results later this week, as it expects a “very strong season” thanks to a “surprisingly resilient economy and an increasingly favorable monetary outlook.

The analyst believes this is reflected in both Alphabet’s cloud and advertising businesses. “While some of these numbers certainly come from positive seasonality, particularly with the US election driving increased interest in YouTube and search, the stock has been quite undervalued in a market that doesn’t appear to benefit from enough favorable wind,” Monteiro said.

Another encouraging sign was the performance of Google Workspace, Alphabet’s suite of productivity tools. Ashkenazi said it also showed “strong growth” as did Google Cloud Platform, which is the company’s data management and AI development suite, with revenue growing faster than that of the global cloud unit.

The Other Bets division, which includes Alphabet’s life sciences business Verily and self-driving car division Waymo, had revenue of $388 million in the quarter, compared with $297 million for the same period a year ago.

Waymo last week farm on a bumper $5.6 billion funding round, and aims to expand its nascent robotaxi service beyond Los Angeles, Phoenix and San Francisco, where it currently operates.

Pichai also talked about Google Lens, an image recognition product that uses smartphone cameras to perform visual searches. According to Pichai, usage of the service has reached more than 20 billion visual searches per month, making it one of the company’s fastest-growing products. He explained that it is most often used by people who are shopping to find more information about the products they are looking at.

During the quarter, Alphabet’s management team experienced a real upheaval. Along with the arrival of Ashkenazi, the company also replaced his longtime search and ads boss Prabhakar Raghavan, along with Nick Fox, who previously led the team responsible for developing Google Assistant. Additionally, Alphabet revealed that the team behind the Google Gemini app is joining Google DeepMind, where she will report to Demis Hassabis.

Jeffrey Wlodarczak, an analyst at Pivotal Research Group, praised Alphabet’s strong performance across the board. “It delivered higher-than-expected revenue across all categories, including search, YouTube ads and Google Cloud, driving revenue growth of more than 15%,” he said.

In light of the results, Wlodarczak said Pivotal is raising its expectations for Alphabet in the fourth quarter and beyond, reiterating his “buy” rating on the stock, which still has “substantial upside potential.” compared to current levels.

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