Alphabet stock rose more than 4% after reporting Q3 earnings above expectations

Alphabet’s stock surged by more than 4% in after-hours trading on Wednesday after the company reported third-quarter financial results that beat analyst expectations.

The performance was linked to a surge of demand tied to new AI partnerships and rising business in the company’s cloud segment during the three months ended September 30.

Alphabet recorded $102.4 billion in revenue, higher than the $99.85 billion analysts had projected and up from $88.3 billion during the same quarter last year.

The company also posted adjusted earnings per share of $2.87, ahead of the expected $2.26 and above the $2.12 from a year ago.

Google Cloud’s contribution was a key element in the quarter. The segment reported $15.2 billion in revenue, up from $11.3 billion in the year-ago period.

Analysts had forecast $14.8 billion for the quarter, meaning the cloud division surpassed expectations by a wide margin.

Alphabet reported the backlog of future cloud revenue commitments increasing to $155 billion, signaling strong customer demand continuing beyond the quarter.

Alphabet increases capital expenditure while rolling out AI products

Alphabet also raised its capital expenditure forecast to $92 billion at the midpoint, an increase from the company’s earlier estimate of $85 billion.

Sundar Pichai, Alphabet and Google CEO, said the company saw broad strength: “Alphabet had a terrific quarter, with double-digit growth across every major part of our business. We delivered our first-ever $100 billion quarter.”

Sundar said Alphabet is accelerating the roll-out of its AI tools, adding that he expanded AI Overviews and AI Mode in Search.

“Our first party models, like Gemini, now process 7 billion tokens per minute, via direct API use by our customers,” said Sundar.

Sundar also pointed to adoption figures, saying the Gemini App has over 650 million monthly active users, and cited the scale in paid consumer products: “We have over 300 million paid subscriptions led by Google One and YouTube Premium.”

Sundar said the company is continuing to invest in computing capacity and infrastructure to support demand.

New cloud deals include OpenAI, Meta, and Anthropic

Alphabet has added several major cloud customers in the AI space. OpenAI expanded to include Google Cloud as part of its infrastructure providers in July.

Meta reportedly signed a $10 billion agreement in late August to use Google Cloud to secure access to additional computing capacity for its AI development.

Meanwhile, Anthropic announced after the quarter ended that it had reached an agreement to use up to 1 million Google-designed TPU chips. Bank of America analysts estimated that the Anthropic agreement could bring in as much as $10 billion in annual revenue for Alphabet.

However, Alphabet faces pressure in its Search division as AI tools enter the consumer search market. OpenAI released its ChatGPT Atlas browser last week, placing the AI developer in more direct competition with Google.

The release briefly pushed Alphabet shares down, showing sensitivity around the future of search. Rob Sanderson of Loop Capital wrote on October 23, “Whether Google can maintain its dominant position in search is a meaningful structural uncertainty.”

Alphabet reported that its Search business brought in $56.6 billion in revenue during the quarter. Analysts had projected $55 billion. The result indicates that demand for Search remains stable even as new AI products attempt to challenge Alphabet’s position.

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