SAN FRANCISCO — Google’s digital advertising revenue experienced significant growth during the holiday season; however, concerns linger among investors regarding the profitability of its substantial investment in artificial intelligence (AI).
In the financial results released by Alphabet Inc., the parent company of Google, for the last quarter of the previous year, it was reported that the firm earned $26.5 billion, equating to $2.15 per share. This marked a 28% increase compared to the same period in the previous year. Overall revenue also saw a 12% rise from the previous year, reaching $96.5 billion. While these earnings surpassed the projections of analysts (estimated at $2.13 per share), the total revenue slightly missed expectations, as highlighted by FactSet Research.
A focal point of concern was the underwhelming growth in revenue from Google’s Cloud division, which many had linked to the rising interest in AI technologies. This disappointment led to a notable decline in Alphabet’s stock price, dropping more than 8% after the announcement, thereby reversing a recent surge that had pushed its shares to an all-time high during the day’s trading session.
“The market reaction reflects worries that competitors, such as Microsoft with its partnership with OpenAI, may have a stronger advantage in transforming the buzz around AI into actual revenue,” remarked Investing.com analyst Jesse Cohen.
Despite this, Google’s advertising revenue showed promising figures, climbing 11% year-over-year to $72.5 billion, thereby exceeding analyst estimates. The increasingly prominent AI-generated summaries featured at the top of search results appear to be playing a vital role in attracting more advertisers.
“There are early indicators suggesting that AI is beneficial for Google,” stated Jim Yu, CEO of BrightEdge, which aids websites in gaining higher rankings on search engines. “What this technology does is retain a more significant portion of the digital interaction within Google’s search environment, allowing visitors to progress further in their journey before being sent to external sites. Therefore, those users hold more value for advertisers.”
However, Google is committing substantial financial resources toward its AI initiatives, leading some investors to question the rationale after a Chinese startup, DeepSeek, has shown an efficient method of utilizing similar technology at a much lower cost. Alphabet’s ongoing AI investments are projected to increase its capital expenditure from $60 billion last year to approximately $75 billion this year.
During a conference call on Tuesday, Alphabet’s CEO Sundar Pichai attempted to alleviate investor concerns by underscoring the positive impact AI is having on driving search traffic and enhancing the popularity of various services. “The company is operating in a smooth and effective manner, developing, testing, and launching products faster than ever before,” Pichai stated.
Before the release of the fourth-quarter results, Google also revised its AI principles, indicating a potential openness to applying its AI technologies in arenas previously deemed unsuitable, such as defense and surveillance. This change, which lifted previous commitments against such deployments that had stood since 2018, was not addressed by Pichai during the conference call, and Google did not provide immediate commentary on inquiries regarding the matter.
Uncertainty concerning AI isn’t the sole issue for Google. The company is also facing increased regulatory scrutiny in the United States, its largest market, raising fears about potential revenue reductions. A federal judge recently ruled that Google’s search engine constitutes an illegal monopoly, paving the way for regulators to suggest the forced sale of its Chrome web browser.
Court proceedings to determine penalties for Google’s search market misconduct are set to commence in April, with expectations for a ruling before autumn. Additionally, amid legal challenges concerning its search engine, Google has been mandated to dismantle the protections associated with its Play Store for Android applications, though that ruling is currently on hold pending an appeal. Moreover, the company awaits a decision regarding an antitrust trial in Virginia that centers around the technology powering its digital advertising network.
