Alphabet has positioned itself as a frontrunner in the artificial intelligence (AI) sector, using its platforms like Google Search and Google Cloud to drive growth. The company is set to announce its third-quarter operating results on October 29, which will provide investors with an important update on its AI-enhanced businesses.
As Wall Street prepares for a bustling end to October, with several major technology firms reporting their quarterly results, attention is squarely on advancements in AI. Alphabet, with its scheduled third-quarter release, is expected to showcase continued strength in its Google Search and Google Cloud divisions, bolstered by AI innovations. Analysts suggest that Alphabet’s stock presents an appealing opportunity due to its compelling valuation, especially in light of its AI developments.
The rise of AI tools, particularly those like OpenAI’s ChatGPT, initially raised concerns among analysts regarding their potential to siphon traffic from conventional search engines. Google Search, which constitutes over half of Alphabet’s revenue, faced perceived risks. In response, Alphabet ramped up its AI initiatives, introducing its Gemini family of large language models (LLMs) that compete with the best in the industry. These LLMs power a chatbot named Gemini and support a new feature called AI Overviews—designed to enhance user experience by combining text, images, and links to supply direct answers to search queries.
These AI Overviews, prominently shown above traditional search results, help users quickly find the relevant information they seek, improving engagement and attracting advertising revenue comparable to regular Google Search ads. With over 2 billion people utilizing this feature monthly, the potential for revenue growth is significant. Alphabet reported impressive earnings from Google Search, generating $54.2 billion in revenue during the second quarter of 2023—an increase of 11.7% from the previous year and an improvement from 9.7% growth in the preceding quarter.
While Google Cloud’s revenue lags behind Google Search, it is integral to Alphabet’s AI strategy. The platform has become essential for businesses aiming to create and implement AI solutions, with almost all AI unicorns, startups valued at over $1 billion, using its services. As AI continues to weave itself deeper into various sectors, Alphabet is well-positioned to capitalize on this trend, with its upcoming earnings report expected to shine a light on its continued growth and innovation in the AI space.