Alphabet disillusioned Wall Street on Tuesday as holiday season promoting sales got here in below expectations and overshadowed the corporate’s efforts in artificial intelligence and the cloud.
Shares fell 6% in after-hours trade.
Alphabet has faced tough competition for ad budgets from other online platforms akin to Facebook, Instagram, TikTok and Amazon, alongside mixed economic signals within the US.
Ad revenue within the fourth quarter was $65.5 billion, up from $59.0 billion within the 12 months ago quarter but short of the common analyst expectation for $66.1 billion, based on LSEG data.
“Alphabet’s disappointing ad revenue numbers suggest that corporations worldwide are still uncertain concerning the pace of rate of interest cuts from global central banks,” commented Thomas Monteiro, senior analyst at Investing.com.
Google, inventor of foundational technology for today’s AI boom, also faces tough competition from the 2 players which have captured the business world’s attention, ChatGPT’s creator OpenAI and its financial backer Microsoft.
While Google’s cloud revenue growth barely topped Wall Street targets, boosted by interest in AI, Microsoft’s Azure grew faster.
Rolling out AI and cloud services requires heavy investment in data centers and research. Capital expenditures shot up 45% to $11 billion, the very best in years, and Chief Financial Officer Ruth Porat told analysts on a conference call that capex could be notably larger this 12 months compared with 2023.
Google is bringing a strong suite of models called Gemini to its ChatGPT rival Bard. It struck a deal to take a position as much as $2 billion in high-profile AI startup Anthropic because it courts customers from larger cloud rivals Microsoft and Amazon, and it’s putting Gemini into advertisers’ hands so their dollars keep flowing to Google’s search business.
Still, AI’s promoting boost may remain far off, in a period of concern that geopolitical and economic uncertainty could discourage ad buyers. The US has began probing AI investments including Alphabet’s, Google is gearing as much as appeal a serious antitrust case it lost, and the corporate like others in technology has been cutting jobs.
Overall revenue for the quarter ended Dec. 31 stood at $86.3 billion, compared with estimates of $85.3 billion, based on LSEG data.
Investors have grown more serious about the fortunes of Google Cloud. Last 12 months the division earned its first-ever quarterly profit, but revenue growth slowed as customers streamlined cloud spending.
Microsoft has been a fierce competitor, adding AI to its cloud and productivity suite long embraced by enterprises, while Google has marketed rival tools. OpenAI’s Nov. 2022 launch of ChatGPT ignited a frenzy over generative AI, which may conjure latest text and pictures on command.
Alphabet said Google Cloud revenue in the most recent quarter was $9.2 billion, while analysts were expecting $8.9 billion. That marked a re-acceleration of cloud revenue growth from the previous quarter to 25.7% but was slower than 32% growth within the year-ago quarter. Microsoft on Tuesday reported that sales of its cloud product, Azure, grew at 30%.
Alphabet CEO Sundar Pichai told analysts that cloud growth was driven partially by generative artificial intelligence.