Google Sales Accelerate as Ad, Cloud Businesses Hold Up Amid Costly AI Push

Google’s parent said quarterly profit jumped by more than half and announced its first cash dividend, sending its stock soaring following months of scrutiny over an expensive push in artificial intelligence.

Parent company Alphabet on Thursday also reported revenue in the three months through March rose 15% from a year earlier to $80.5 billion. That marked an uptick from the 13.5% rise in the previous quarter. The company highlighted cost controls that helped improve profit margins in the latest quarter.

Big tech companies such as Google and Microsoft—which also reported Thursday better-than-expected quarterly sales growth—are pouring money into building new data centers and chips for artificial intelligence.

Alphabet recorded $12 billion in capital expenditures during the first quarter, a 91% increase from the same period last year. Chief Financial Officer Ruth Porat said investors can expect quarterly capital spending to be “roughly at or above this level.”

The Google parent also posted robust profits, with net income in the quarter soaring 57% to $23.7 billion.

Shares rose sharply after the results and the 20-cent dividend announcement, gaining more than 12% in after-hours trading Thursday.

Ad sales in the first quarter rose 13% from a year earlier to $61.7 billion. Sales in Google’s cloud division rose nearly 29% to $9.6 billion.

Profits were helped by ongoing cost cuts. Chief Executive Sundar Pichai and Porat slashed additional jobs this month in the real-estate and finance divisions, adding to a series of cuts that Pichai said would continue through this year.

A Google spokeswoman said Thursday the company made additional layoffs in the core engineering division affecting about 200 employees. The spokeswoman said employees would be able to apply for open roles across Google.

Investors are closely watching for signs of whether and how the tech giants are reaping new business from investments in AI programs that can generate text and images. Google, in particular, has faced persistent questions about its ability to defend its business model, which relies heavily on search ads, as more people turn to chatbots for answers.

Google has offered few specifics about how AI is affecting its sales and profits. Multiple analysts asked Pichai on a call Thursday for more details on how AI is improving Google’s financials.

Pichai said Thursday the company is encouraged by an increase in search usage among people trying its new AI tools, but he otherwise provided little in the way of metrics on the technology’s business impact.

Investor jitters over AI costs were on display after Meta Platforms told investors Wednesday to expect at least an additional $5 billion in capital expenditures this year. That sent the Facebook owner’s shares, which had gained sharply over the past year and a half, down more than 10% in Thursday trading, even though Meta reported record first-quarter revenue growth that beat Wall Street’s expectations.

Meta CEO Mark Zuckerberg said Wednesday he didn’t expect the company’s AI services to be profitable for years.

Google over the past 18 months has been battling for position in the AI race against rival Microsoft and its partner, OpenAI, the startup behind ChatGPT. The companies have rolled out competing products aimed at getting businesses to pay for AI-driven features that do things like help write computer code.

The battle has become more competitive as a growing number of established companies and startups roll out their own AI models that perform similar tasks.

Google was initially slowfooted in its response to OpenAI, and more recently botched the rollout of image-generation features in its Gemini chatbot.

But Alphabet shares have recovered from a dip following that episode. The stock had gained about 12% this year through Thursday’s close, well ahead of the tech-heavy Nasdaq Composite Index.

Pichai has restructured Google’s operations multiple times to try to improve its speed in releasing AI features. He reorganized the company’s hardware and research divisions this month, changes he said would accelerate work on AI. Google also recently consolidated its search team under vice president Liz Reid, who has overseen new AI features in its flagship product.

“If you were to step back, there were a lot of questions last year. We always felt confident and comfortable we would be able to improve the user experience,” Pichai said Thursday on the call. “People questioned whether these things would be costly to serve, and we are very, very confident we can manage the cost of how to serve these queries.”

Ad sales for Google’s core search engine were a bright spot, growing at the fastest rate in more than a year.

Google’s core business has benefited from a surge in ad spending by Temu and other Chinese e-commerce companies. The retailer was one of Google’s top five advertisers by spending last year, The Wall Street Journal reported.

Yearly advertising growth on YouTube surged 21%, with the video platform bringing in $8.1 billion from ad sales. Google executives have increasingly emphasized YouTube’s growing subscription business on recent earnings calls.

Alphabet said it plans to continue paying quarterly cash dividends, subject to board approval. The board also authorized $70 billion in new stock buybacks, the same amount as last year.

Write to Miles Kruppa at [email protected]