Wednesday after parent company Alphabet (GOOGL) reported third-quarter profit and revenue that beat Wall Street targets as artificial intelligence-powered internet search showed signs of boosting its core advertising business. First, Google stock soared.
The growth of Internet search advertising is remarkable.
On the stock market that day, Google shares rose about 6.8% to 181.20 in early trading. Shares rose 21% in 2024 ahead of Google’s earnings release, but underperformed in the September quarter.
Additionally, Internet search advertising rose 12% to $49.39 billion, beating Wall Street analysts’ expectations for an 11.5% increase to $49.02 billion.
Ad search revenue also outpaced the “buy-side bogey” for Google stock, analysts said. Mutual funds, hedge funds and institutional investors were expecting 12% to 13% growth in ad search revenue, according to a report from Deutsche Bank.
Additionally, Google’s use of generative artificial intelligence in internet searches is drawing attention. Google began a broader rollout of AI Overview in the U.S. in mid-May, with conversational summaries appearing at the top of links for many search queries. The AI overview system used Google’s internal Gemini model.
JPMorgan analyst Doug Anmas said in a report that Google’s advertising search business appears to be gaining momentum.
“AI Overview is driving increased engagement and user satisfaction in part through longer and more complex queries,” Ammuth said. “Also, AI Overview monetizes at about the same rate as non-AI search. We believe that GOOGL is being evaluated and methodical in how it deploys AI-powered capabilities. We continue to believe. In addition to running ads above and below AI Overview, Google now shows search and shopping ads in AI Overview for mobile users in the United States.”
Will capital investment be modest in 2025?
Ammuth added: “We recognize that long-term questions remain regarding the monetization of AI search, and Google still needs to push AI overview into more commercial queries. However, we are We are encouraged by developments in AI.”More broadly, Google said: Reduced the cost of Gen AI queries by 90% and doubled the size of custom Gemini models in 18 months. ”
Meanwhile, new chief financial officer Anat Ashkenazi has suggested that capital spending may be curbed in 2025.
Capital spending in the third quarter was $13.06 billion, beating the consensus estimate of $12.66 billion.
“As we look to next quarter and next year, we plan to invest approximately $13 billion in the fourth quarter, about the same level as we invested in the third quarter,” he said on an earnings call with analysts. Ta. “And as we look to 2025, we expect to see an increase in 2025, and we’ll be talking more about that in the fourth quarter conference call, but probably between 2023 and 2024. It won’t be the same percentage increase, but it will be an additional increase.”
Wall Street expects Google’s capital spending to increase by nearly 60% in 2024, to about $51 billion.
Based on Ashkenazy’s comments, Bank of America raised its 2025 capital spending forecast to $59 billion, an increase of about 15%.
However, the BofA report said Wall Street is also concerned that higher depreciation costs associated with capital spending could weigh on earnings in 2025.
BofA predicts that depreciation and amortization will increase by about 35% to $21 billion in 2025.
Cloud computing beats YouTube results
Google’s profit, announced after the market closed on Tuesday, was $2.12 per share, an increase of 37% from a year ago. The internet giant reports its revenue based on Generally Accepted Accounting Principles, also known as GAAP.
Additionally, total revenue increased 15% to $88.3 billion. Analysts surveyed by FactSet had expected Google to post earnings of $1.84 a share and revenue of $86.4 billion.
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Additionally, investors are focusing on operating expenses and profit margins as capital expenditures surge amid investments in artificial intelligence. Operating margin for the second quarter rose to 32% from 28% in the same period last year, exceeding expectations of 30.6%.
Meanwhile, Google’s YouTube ad revenue came in at $8.92 billion, slightly above expectations for a 12% increase in revenue to $8.88 billion.
Additionally, Google reported third-quarter cloud computing revenue of $11.35 billion, beating expectations of $10.88 billion, a 29% increase.
Google stock: technical evaluation
Additionally, Alphabet repurchased $15.29 billion of Google stock in the third quarter, slightly less than the $15.68 billion in the second quarter.
Additionally, the overall rating for Google stock is 91 out of 99, according to IBD Stock Checkup. Google stock is one of the AI stocks to watch.
Follow Reinhard Krauss on Twitter @reinhardtk_tech Get the latest information on artificial intelligence, cybersecurity, and cloud computing.
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