Alphabet Stock Saw Growth in the Third Quarter

Alphabet, its parent company Google, saw its shares rise by more than 5% in after-hours trading on Wednesday after surpassing Wall Street's revenue and profit estimates for the third quarter. This growth was shaped by artificial intelligence (AI) deals in the company's cloud segment.

The company reported $102.4 billion in revenue for the three-month period ending September 30, 2023. This figure is above the $99.85 billion that Wall Street analysts tracked by Bloomberg had forecasted and shows a significant increase from $88.3 billion in revenue during the same period last year.

Revenue growth was supported by Google Cloud. The cloud independent service generated $15.2 billion in revenue, a 34% increase from a year ago, exceeding analysts' estimate of $14.8 billion.

Alphabet reported an adjusted earnings per share (EPS) of $2.87 for the third quarter, surpassing analysts' expectations of $2.26 and also exceeding the $2.12 figure from the same quarter last year.

Additionally, the company raised its capital expenditure forecast for the year to $92 billion, up from a previous estimate of $85 billion.

Sundar Pichai, CEO of Alphabet and Google, stated, "Alphabet had an amazing quarter, we achieved double-digit growth in every important area of our business. For the first time, we reached a quarterly revenue of $100 billion."

The tech giant is showing positive benefits from the AI boom. Gemini AI models gained popularity, and notable AI developers signed deals to utilize cloud services. OpenAI added Google to its list of cloud infrastructure providers in July. Furthermore, in a deal worth $10 billion under Meta (META), efforts were made to utilize Google Cloud services.

Additionally, Anthropic signed an agreement to use one million customized AI chips with Google Cloud; this agreement is expected to generate $10 billion in revenue for Alphabet annually.

However, AI chatbots led by OpenAI pose a threat to Google's core search business. OpenAI launched the ChatGPT Atlas web browser last week, causing a temporary drop in the value of Alphabet shares.

Loop Capital analyst Rob Sanderson assessed, "It is important structural uncertainty whether Google can maintain its dominant position in the search space."

Google’s search business generated $56.6 billion in revenue in the September quarter, exceeding analysts' forecast of $55 billion, according to Bloomberg data.