The parent company of Google, Alphabet, announced on Tuesday that its investments in artificial intelligence are "paid off," as the third quarter registered a 35% growth in the field of advertising technologies and an increase in revenues from advertising on YouTube due to spending related to the elections in the US. Alphabet's shares surged nearly 6% in after-hours trading on Tuesday.
"Considering the slow pace of competition with major tech company Microsoft in the field of artificial intelligence, Google is leveraging its Gemini AI bot and improving its search engine based on AI," the report states. The company continues to invest significant resources in artificial intelligence. Its new financial director, Anat Ashkenazi, reported in her first earnings call that Alphabet's capital expenditures in 2025 will exceed those in the current year.
Alphabet's capital expenditures in the third quarter grew by 62%, reaching $13 billion. The search sector is also under the watchful eye of regulators striving to split the company. Nevertheless, their business in advertising technologies grew at the fastest pace during all four quarters to $11.35 billion.
"I consider this to be an impressive quarter because it is that fact that Google Cloud was able to compensate for the decline in revenue from search, signaling the growing importance of revenues from the cloud, as well as the fact that the company continues to diversify its revenue base," noted Bob O'Donnell, president of TECHnalysis Research.
Analysts remarked that users find the new tools of the company's artificial intelligence more effective than earlier ones, which indicates a significant improvement compared to the earlier stage of this year when the function received harsh criticism for inaccurate responses. "A decline in demand was expected, especially for Google, in the advertising market in the coming year, and this is the first time in the last 18 years," the report states.
At the same time, profits from advertising on YouTube and the core search business grew by 12%. The company exceeded expectations for profit with $2.12 per share compared to an average market forecast of $1.85. Overall, Alphabet's revenues increased by 15% to $88.27 billion for July-September.
"The norm for the fourth quarter is expected to be upward," the company stated. Some analysts noted the impressive quarter of Alphabet compared to low expectations, believing that its minor yet growing business in advertising technology could quickly replace the slowdown in revenue from advertising business.
The internet company Snap, also dependent on advertising, reassured its shareholders, exceeding expectations on its overall income and user growth. At the same time, profits from digital advertising for Alphabet, which constitutes a core part of its total revenues, grew by 10% to $65.85 billion.
"I fully expect that Google will start losing ground in the advertising market over the next two to three years," said senior analyst Anjelo Zino from CFRA Research. "The growth in the cloud sector was massive, which continues to support the argument that large providers of advertising technologies are well positioned to benefit from developments in artificial intelligence."
