Google parent Alphabet (GOOGL.O) reassured jittery tech investors that its AI investments were powering returns at its crucial ad business on Thursday, downplaying any impact from global economic uncertainty, for now.
The search giant's first-quarter profit and revenue beat expectations, and the company said it would buy back $70 billion in stock, pushing its shares up 4% after market and adding $75 billion to its market value.
Alphabet reaffirmed its ambitious AI build-out plans and backed its $75 billion capex guidance for the year, offering hopes for investors in Meta (META.O) and Amazon (AMZN.O), whose shares also rose in aftermarket trading.
U.S. President Donald Trump's trade policy has triggered worries of an economic downturn, prompting companies to rethink their spending on advertising. It has also fuelled investor concern that tech giants may have to pause or slow their ambitious AI infrastructure build-outs due to rising costs from tit-for-tat tariffs between the U.S. and China.
Big Tech has continued to defend its aggressive AI investments, saying these were necessary to remain competitive. But analysts have said there are early signs of tech majors pulling back on new data center commitments.
"I saw the narrative around infrastructure spending as being one that was particularly a negative narrative in the market, suggesting that AI investments had peaked and that this was a sign that the bubble was deflating. And I think what Google told us today was it's absolutely not the case," said Will Rhind, CEO of global ETF issuer GraniteShares.
Revenue from Google's mainstay ad business, which makes up nearly three-quarters of its overall revenue, rose 8.5% to $66.89 billion in the quarter — a slowdown from the prior quarter's 10.6% increase, but still above analysts' expectations for a rise of 7.7%.
Still, Google's chief business officer Philipp Schindler told analysts during a conference call the company was not immune to macroeconomic uncertainty.
"The changes to de minimis exemption will obviously cause a slight headwind to our ads business in 2025, primarily from APAC (Asia Pacific)-based retailers," he said, referring to Trump's order this month to end a trade rule allowing low-value packages from China and Hong Kong to enter the U.S. free of duties.
Some of the biggest U.S. advertisers include Chinese e-commerce websites Temu and Shein, and they are sharply cutting their U.S. digital ad spending, industry data showed, in a move that could dent ad revenues at Google and Facebook parent Meta.
SEARCH REVENUE GROWTH
The integration of AI into Google search is key to its advertising appeal, as it offers advertisers the ability to run more effective campaigns and get more return on their dollars.
CEO Sundar Pichai said AI Overviews, the summaries that appear above traditional hyperlinks to relevant webpages, now have 1.5 billion users per month. In March, Google added a new AI-only mode to its search.
"Search revenue growth continues to be strong despite worries about generative AI platforms, such as ChatGPT, impacting the search business," said David Heger, an analyst at Edward Jones.
Google Cloud reported a 28% rise in revenue to $12.26 billion, slowing from the 30.1% growth reported in the previous quarter. Analysts were expecting the unit to report revenue of $12.27 billion, according to LSEG's data compilation.
The company reported total revenue of $90.23 billion for the first quarter, compared to analysts' average estimate of $89.12 billion.
Alphabet reported a profit of $2.81 per share for the January-March period, beating estimates of $2.01 per share, according to LSEG data. The firm also said it would raise its quarterly dividend by 5% to 21 cents per share.
The company spent $17.20 billion on capital expenditures in the quarter, a 43% increase from the same period a year earlier.
