Alphabet crushes expectations, with cloud, AI and search all showing strength

Alphabet Inc., the parent company of Google LLC and YouTube, delivered better-than-expected results as it posted its first-quarter earnings report today, lifting its stock more than 4% after-hours.

The internet search and cloud computing giant reported earnings before certain costs such as stock compensation of $2.81 per share, crushing Wall Street’s target of just $2.01 per share. Revenue for the period rose 12% compared to a year earlier, hitting $90.32 billion, above the $89.12 billion consensus estimate.

All told, Alphabet posted net income of $34.54 billion in the quarter, up 46% from the same period one year earlier. Executives said the higher profit included just over $8 billion in unrealized gains on non-marketable equity securities relating to its investment in a private company.

The Google Cloud business once again demonstrated strong growth, with revenue rising 28% from a year earlier to $12.26 billion. It fell just short of Wall Street’s estimate of $12.27 billion, but investors seemed willing to overlook that, as the unit’s profitability accelerated considerably. Alphabet said Google Cloud’s margins came in at an impressive 17.8%, up from just 9.4% a year earlier.

Alphabet Chief Executive Sundar Pichai (pictured) said the highlight of the quarter for Google Cloud was the launch of Gemini 2.5, which is the company’s most intelligent artificial intelligence model so far. “It’s achieving breakthroughs in performance and is an extraordinary foundation for our future innovation,” he promised.

In March, the company announced it will pay $32 billion to acquire the Israeli cloud security company Wiz Inc., in what will be its biggest-ever acquisition when the deal closes next year. Google Cloud said at the time that the deal will help to boost its security offerings.

In a conference call with analysts, Pichai reiterated that point, saying it will help to drive “more multicloud computing, something our customers want.”

Alphabet Chief Financial Officer Anat Ashkenazi said the vast majority of the company’s $17.2 billion in capital expenditures during the quarter were directed towards the cloud computing business. She added that the largest investment was “servers, followed by data centers,” aimed at supporting Google Cloud and its AI offerings.

In addition, she reiterated that Alphabet is still committed to spending $75 billion over the course of the year, primarily on AI infrastructure. “The investment level may fluctuate from quarter to quarter due to the impact of changes in the timing of deliveries and construction schedules,” she said.

Search business still going strong

Elsewhere, Alphabet’s search and advertising businesses showed strength despite the rising threat of AI-native competitors and concerns around the economic turmoil caused by U.S. President Donald Trump’s trade policies.

The company’s “Search and Other” business unit delivered $50.7 billion in sales, up 10% from a year earlier and above the consensus estimate of $50.2 billion. YouTube advertising revenue came to $8.93 billion, just shy of the Street’s target. Overall, advertising revenue hit $66.89 billion, up 9% from a year ago.

Alphabet has responded to the AI threat to its search business by integrating its own, Gemini-powered search results in a feature called AI Overviews. On the call, Google Chief Business Officer Philipp Schindler said AI Overviews now counts 1.5 billion users per month, up from just 1 billion in October.

“Q1 marked our largest expansion to date for AI overviews, both in terms of launching to new users and providing responses for more questions,” said Schindler. “Overall, we continue to see monetization at approximately the same rate, which gives us a strong base in which we can innovate even more.”

On the other hand, Schindler admitted that Google “is not immune to the macro trade environment” and warned that Trump’s decision to close the “de minimis” trade loophole next month will create a “slight headwind” for the advertising business, mainly affecting Asia-based retailers.

The de minimis trade exemption is a rule that allows shipments valued at less than $800 to be imported into the U.S. without any duties. Chinese e-commerce giants such as Temu and Shein regularly take advantage of this to ship low-cost consumer products into the country, spending millions of dollars on online ads in the process. But the exemption will close on May 2, reducing their capacity to undercut U.S. firms.

Nonetheless, Schindler said the company has “a lot of experience in managing through uncertain times,” and specializes in helping companies understand the changing consumer behaviors relevant to their businesses.

Investing.com analyst Thomas Monteiro said in a note to clients that “Alphabet has delivered a solid response to those questioning the solidity of the search business.”

“When you combine the numbers seen today with Alphabet’s also solid cloud performance, it leaves few doubts about the company’s leading position in the AI search revolution,” the analyst wrote.

Alphabet’s “Other Bets” business unit, which includes the life sciences division Verily and the self-driving car unit Waymo, is still a money pit. Revenue came to $450 million during the quarter, down 9% from a year earlier, resulting in a net loss of $1.23 billion, up from a $1.02 billion loss one year ago.

Despite this, Alphabet officials remain bullish on Waymo’s longer term prospects. They said the company’s fully autonomous taxis are now providing 250,000 rides per week across the San Francisco Bay Area, Los Angeles, Phoenix and Austin, Texas, up from just 200,000 at the end of the last quarter.

“Waymo is continuing to progress in building on its impressive technological achievements to scale rapidly and develop a sustainable business model,” Ashkenazi said.

Photo: Philippe Masse/Flickr