Alphabet earnings show drive to boost Google Cloud and AI adoption

Google parent Alphabet has reported a 15% increase in its first-quarter revenue to $80.5bn. While advertising remains the biggest earner, the company’s cloud business, Google Cloud, accounted for almost 12% of its total revenue for the quarter. Operating income for Google Cloud increased from $191m in the first quarter of 2023 to $900m for the equivalent quarter this year.

Earlier this month, Alphabet said it would be combining teams that focus on building artificial intelligence (AI) models across Google Research with Google DeepMind to further accelerate its progress in AI. The consolidation means AI model development teams previously under Google Research in its Google Services business are being integrated into Google DeepMind.

Like other tech giants, Alphabet has placed huge bets on the take-up of AI, and CEO Sundar Pichai used the first-quarter earnings filing to speak about the company’s leading position in AI and its new Gemini offering.

“We are well underway with our Gemini era, and there’s great momentum across the company. Our leadership in AI research and infrastructure, and our global product footprint, position us well for the next wave of AI innovation,” he said.

According to the transcript of the earnings call posted on Seeking Alpha, Pichai’s prepared statement referenced Alphabet’s ability to build IT infrastructure.

“We have the best infrastructure for the AI era,” he said. “Building world-leading infrastructure is in our DNA. Our datacentres are some of the most high-performing, secure, reliable and efficient in the world. They’ve been purpose-built for training cutting-edge AI models and designed to achieve unprecedented improvements in efficiency.”

Pichai claimed the AI models and algorithms Alphabet has developed are more than 100 times more efficient than they were 18 months ago. “We are committed to making the investments required to keep us at the leading edge in technical infrastructure,” he added.

When asked about the challenges of operating technology innovation at scale, he said: “The real opportunities we see is the scale of research and innovation, which we have built up and are going to continue to deliver. I think for the first time, we can work on AI in a horizontal way and it impacts the entire breadth of the company, be it Search, be it YouTube, be it Cloud, be it Waymo, and so on.”  

He said the challenges are in ensuring the company embraces the AI opportunity while taking a very efficient approach and redirecting people to the highest priorities across the company.

The first-quarter 2024 results show the company is ramping up AI research and development (R&D) and pushing Google Cloud commercially. Chief financial officer Ruth Porat said: “Operating expenses were up 5%, reflecting first in R&D an increase in compensation expense primarily for Google DeepMind and Cloud, and second in sales and marketing a slight increase year-on-year, reflecting increases in compensation expense primarily for cloud sales.”

Commenting on the results, Forrester senior analyst Nikhil Lai said: “In terms of what’s to come, Sundar Pichai and Philipp Schindler [Alphabet’s chief business officer] mentioned many developments in AI-integrated advertising, including bringing Gemini models to Performance Max and the rising adoption of AI-powered tools like Smart Bidding and automatically created assets. In all cases, it’s mathematically obvious to adopt Google’s AI-integrated advertising tools – they perform – however, performance comes at the expense of advertisers’ control and transparency.”