Google parent Alphabet’s stock spikes on strong cloud profits, AI demand and first cash dividend – Business
Shares of Google LLC’s parent company Alphabet Inc. rallied in late trading today after it reported first-quarter earnings and revenue that topped analysts’ estimates, delivered strong profit from its cloud unit, and announced its first-ever dividend.
The company’s stock was up more than 11% in the extended trading session, lifting its market capitalization beyond the $2 trillion mark. It reported earnings before certain costs such as stock compensation of $1.89 per share, easily beating the analysts’ target of $1.51 per share, while revenue jumped 15% from $69.97 billion one year earlier to $80.54 billion today, well ahead of Wall Street’s $78.59 billion forecast.
The jump in revenue was the company’s fastest rate of growth since early 2022, while net income rose even more, up 57%, to $23.66 billion in the quarter.
Alphabet Chief Executive Sundar Pichai (pictured) said the impressive results reflect both the strong performance from Google Search, Google Cloud and YouTube as well as the rising demand for the company’s artificial intelligence services. “We are well under way with our Gemini era and there’s great momentum across the company,” he said. “Our leadership in AI research and infrastructure, and our global product footprint, position us well for the next wave of AI innovation.”
The results alone would likely have excited investors, but Alphabet went one further by announcing its board has approved a cash dividend of 20 cents per share, which will be paid on June 17 to shareholders of record as of June 10. Going forward, the company will pay cash dividends to shareholders on a quarterly basis.
The announcement comes in the wake of Meta Platforms Inc., which also announced its first-ever dividend in February. It leaves Amazon.com Inc. as the only trillion-dollar company not to offer a dividend to shareholders.
Investing.com analyst Thomas Monteiro said the dividends payout, on top of the solid earnings beat, is a breath of fresh air for the technology market and also an intelligent strategy going into a tough time of the year.
“At a time when companies need investment capital more than ever amid the growing arms race in the AI space, and experience financing difficulties due to the repricing of interest rate expectations, this well-timed use of the company’s cash pile may put it a couple of steps ahead of the competition in the innovation space at a pivotal moment,” Monteiro said.
In addition, Alphabet’s board authorized the repurchase of an additional $70 billion in company stock “in a manner deemed in the best interest of the company and its stockholders.” The company closed the quarter with cash, equivalents and marketable securities of $108 billion, down from $110.9 billion one year ago.
Alphabet notably crushed Wall Street’s guidance for YouTube advertising revenue, with sales there rising to $8.09 billion, well ahead of the $7.72 billion expected. All told, it reported total ad sales of $61.66 billion, rising from $54.55 billion a year earlier.
Traffic acquisition costs came to $12.95 billion, higher than the $12.74 billion forecast by Wall Street analysts.
As for the all-important Google Cloud unit, it delivered revenue of $9.57 billion, beating the Street’s forecast of $9.35 billion. The unit, which became profitable only about a year ago, saw its profit more than quadruple, rising to $900 million. The growing profitability shows that years of investments aimed at catching up with rivals such as Amazon Web Services Inc. and Microsoft Corp. is finally paying off.
The company’s AI investments have been a big part of Google Cloud’s strategy, with the company being at the forefront of the generative AI push in particular. In recent months it has enhanced its main search engine and various other products with generative AI to ensure people keep using its tools at a time when the way they seek information evolves.
Google Cloud did not break out its AI revenue, but it’s thought that its rising profits are being driven by growing adoption of its AI services and infrastructure. Analysts say that its cloud infrastructure offerings have proven attractive to many venture-capital backed startups developing generative AI services, due to its low pricing and ease of integration with other tools.
On a conference call with analysts, Pichai said the company’s AI offerings have helped to boost its core Search business. “We are encouraged that we are seeing an increase in search usage among people who are using the AI overviews,” he told analysts.
Holger Mueller of Constellation Research Inc. told SiliconANGLE there was a lot to like about Alphabet’s report, and very little, if any concerns. “The company had a great quarter, bouncing back on year-over-year comparisons, with revenue up 15%, operating margin improving by seven basis points and net income up more than 50%,” he pointed out. “Ad revenue was up, and Google Cloud revenue was up more than 25%, showing the strong demand for generative AI. The cloud business is now close to the $10 billion per quarter milestone, and it will likely reach that target in the second quarter.”
Monteiro believes Alphabet has also benefited from a recent push by Pichai to make the company more efficient. “[He is] putting Alphabet on the correct path while others, such as Meta, are struggling to keep margins at positive levels,” the analyst said. “These efficiency measures broadly made up for the high traffic acquisition costs, thus allowing the company to garnish very strong revenue from both YouTube ads and Google Cloud. It also allowed the company to begin showing returns for its massive AI investments over the last two quarters.”
Prior to today’s report and subsequent stock pop, Alphabet’s shares had risen 45% in the last 12 months, compared with an S&P 500 Index that has gained 22% over the same period.