Google Cloud revenue in the second quarter topped $8 billion as parent Alphabet reported better-than-expected results and said CFO Ruth Porat will take on a new President and Chief Investment Officer role Sept. 1.
Porat was the longest serving CFO at Google. Alphabet's move to put Porat in charge of investments is notable. She will be responsible for Alphabet's "Other Bets" portfolio. Porat will also work with policymakers and regulators.
Alphabet reported second quarter revenue of $74.6 billion, up 7% from a year ago, with net income of $18.4 billion, or $1.44 a share.
Wall Street was expecting Google to report second quarter adjusted earnings of $1.34 a share on revenue of $72.82 billion, according to Refinitiv. Google Cloud was expected to deliver revenue of $7.87 billion, according to StreetAccount.
CEO Sundar Pichai said the company is “driving the next evolution of search and improving all of our services” with AI. Porat added that there was an acceleration of revenue growth in search and YouTube and momentum with Google Cloud.
Indeed, Google Cloud revenue in the second quarter topped YouTube ad sales of $7.66 billion. Google Cloud operating income was $395 million in the second quarter, compared to a loss of $590 million a year ago.
Google has been busy this quarter adding capabilities to Bard, its generative AI technology, and sprinkling generative AI throughout its portfolio. Google Cloud also launched a series of AI-driven enhancements to its platform. While there will be multiple generative AI winners in the tech sector, Google vs. Microsoft, which is partnered with OpenAI, is the main card. It’s a battle that will take years to play out.
Here’s a look at some of the notable enterprise technology headlines from Google this quarter.
- Google Cloud lays out generative AI partnerships, Mayo Clinic deal, customer wins
- Google I/O 2023: Google makes its generative AI case, Bard becomes ingredient brand
- At Google I/O 2023, Google Cloud launches Duet AI, Vertex AI enhancements
- Google’s generative AI strategy from Google I/O 2023: Hits and misses
Alphabet ended the quarter with 181,798 employees, up from 174,014 a year ago. Alphabet said the majority of employees affected by workforce reductins are no longer included in the headcount totals.
Speaking on a conference call with analysts, Pichai made the following points:
- User feedback to generative AI in search has been strong. "We see this new experience as another jump-off point for users to go deeper," he said.
- Google has sped up response time of Bard in search. Bard is also improving coding productivity.
- Ads will continue to play a role in the generative AI evolution of search. "We are testing and evolving placements and formats," said Pichai, who added AI is also being used in Google's ad products.Generative AI is being used to create ad formats.
- Google Cloud is being optimized to work with multiple generative AI models. "We see continued growth," said Pichai. "Our AI infrastructure is optimized for training and serving generative AI models."
- Machine learning and AI are making data centers more efficient.
- Generative AI is driving Google Workspace demand and upsell opportunities to existing customers.
As for the outlook, Porat said the company sees stabilization in advertising revenue for YouTube, YouTube Music, YouTube Premium, search and hardware, which was fueled by the Pixel 7a launch in the second quarter.
Regarding cloud, Porat said the company is excited about demand for its AI offerings, but customers continue to optimize their spending.
Porat added that Google is optimizing its cost base through slower organic hiring, redeploying workers on more high value projects and improving efficiency. The largest capital expenditure was servers in the second quarter, but the rest of 2023 will feature more spending on data centers, GPUs and TPUs.