Alphabet Records Cloud Unit Growth amid Google AI Plans

| Updated
by Mercy Tukiya Mutanya · 3 min read
Alphabet Records Cloud Unit Growth amid Google AI Plans
Photo: Depositphotos

Sundar Pichai revealed that the company was planning to use new AI models to automate some customer services. 

Alphabet‘s second-quarter earnings report released on Tuesday shows that the company surpassed revenue and profit expectations despite challenges such as a plunging digital advertisement market and the emergence of AI-powered chatbots. Shares rose about 7% in after-hours trading and are 6% up on Wednesday after the tech conglomerate revealed that its 2023 Q2 revenue rose 7% from $69.7 billion a year before to $74.6 billion.

The multinational, which is Google’s parent company, was up 47% for the year before the after-hours gain. It reported a 28% revenue increase in Google’s cloud unit. The division, which includes cloud infrastructure and productivity apps turned profitable on an operating basis in Q1, posted an operating income of $395 million in Q2. Google’s ad revenue increased from $56.29 billion last year to $58.14 billion this year, a 3.3% rise.

“If you step back, you’re seeing real weakness in linear TV, ad agencies, smaller digital companies,” said Moffett Nathanson analyst Michael Nathanson, on Alphabet’s investor call following the results. “Yet you guys have accelerated your growth this quarter.”

Google’s search revenue performed relatively well in light of emerging competition for users from OpenAI’s generative AI chatbot ChatGPT which was recently integrated into Microsoft’s Bing search engine. The steady growth served as a reassurance to investors who had started to express concern about the survival of traditional search. CEO Sundar Pichai attributes this to Google’s chatbot Bard, which has been a priority investment area in the past few months. Alphabet execs assured investors that AI was being integrated into the company’s operations, neglecting to comment on when Google’s search feature called Search Generative Experience (SGE) would be made available for public use. According to the tech giant, SGE will be able to produce search results from more complex queries.

The CEO also highlighted different search options the company is currently exploring. “Over time, this will just be how search works,” Pichai said. “It really gives us a chance to now not always be constrained in the way search was working before. It allows us to think outside the box. We are ahead of where I thought we’d be at this point in time.”

As an example, he revealed that the company was planning to use new AI models to automate some customer services.

A strong revenue stream for the company is its cloud infrastructure unit. The department has seen an influx of AI companies looking to run their compute-heavy projects. According to Pichai, over 70% of billion-dollar tech startups focused on generative AI, including Cohere, Jasper and Typeface, are Google Cloud customers. The unit saw an unexpected revenue increase of 28% to $8 billion in Q2.

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