Google parent Alphabet’s profit soars on advertising, cloud growth

Parent Alphabet reported solid first quarter earnings, but the impact of tariffs going forward is still unclear as the internet giant spends record sums on artificial intelligence.

Google’s earnings power is holding up well, even as the internet giant spends record sums on artificial intelligence in the midst of global economic turbulence.

Parent company Alphabet reported operating income of $US30.6bn for the first quarter on Thursday (Friday AEST) – solidly beating Wall Street’s forecast of $US28.7bn.

Revenue rose across the company’s business units but was largely in line with analysts estimates, with the key advertising and cloud computing segments showing slower revenue growth rates compared to three months ago.

Capital expenditures reached a record $US17.2bn in the quarter.

The stronger bottom line showed Google’s resilience in a quarter that was marked by fears of an impending trade war and the impact that could have on the global economy.

Alphabet’s share price rose 5 per cent in after-hours trading following the results.

But those worries remain.

Google doesn’t issue financial projections with its quarterly reports, which leaves it unclear just how its business was impacted by US President Donald Trump’s April 2 announcement of shockingly high tariffs, and the turbulence that has followed given the ever-changing status of those tariffs.

Alphabet chief executive Sundar Pichai said the business was growing in its key focus areas. Picture: Justin Sullivan/Getty Images via AFP

On the company’s earnings call, Google’s chief business officer Philipp Schindler said it’s “too early to comment” on trends for the current quarter.

Most of Google’s business isn’t directly affected by tariffs on foreign goods, but the company draws a lot of advertising and cloud revenue from companies that are affected.

This fed a lot of worries ahead of Google’s report; UBS analysts predicted in a report earlier this month that “budget commitments particularly for advertising will remain frozen.”

Schindler would only say that he expects a “slight headwind” to Google’s advertising business from changes to the so-called di minimis rule, which once allowed goods priced below a certain threshold to avoid tariffs.

Alphabet’s revenue rose 12 per cent to $US90.23bn compared with $US80.54bn a year ago. Analysts expected $US89.18bn.

Net income was $US34.54bn, or $US2.81 a share, for the first quarter, compared with $US23.66bn, or $US1.89 a share, in the same quarter a year earlier. Analysts expected $US2.01 a share, according to FactSet.

Google’s advertising revenue rose 8 per cent year over year to $US66.9bn, while cloud revenue jumped 28 per cent year over year to $US12.3bn. Both were decelerations from the growth rates seen in the fourth quarter.

But Google is not yet blinking in its plans to invest aggressively in generative AI. The company maintained its plan to put $US75bn toward capital expenditures this year — more than double its annual average over the past five years.

Google didn’t exactly face a high bar coming into its results.

Alphabet’s stock has been flat over the past 12 months, lagging most of its megacap tech peers on worries about its position in AI and the loss of two federal antitrust cases that could ultimately result in the company’s breakup.

Alphabet also commands the lowest valuation multiple of the major tech giants, with the stock trading at just 18 times projected earnings for the next four quarters, compared with Microsoft’s multiple of 28 times, according to FactSet data.

As the first tech leader to report earnings since the tariff volatility began, Alphabet’s results might reassure investors. But the lack of any forecast will keep questions hanging over the company and its big tech peers for a while longer.

Chief executive Sundar Pichai said search saw continued strong growth, boosted by engagement with its artificial intelligence features.

Pichai said the company now has over 270 million paid subscriptions, driven by YouTube and Google One.

The company’s board also authorised a share buyback of an additional $US70 billion of its Class A and Class C shares.

– The Wall Street Journal