4 Key Takeaways From Google Parent Alphabet’s Earnings Call

After Google parent Alphabet (GOOGL) reported first-quarter results Thursday that blew past analysts’ estimates, executives spoke in its earnings call about how the company expects to expand artificial intelligence (AI) capabilities across its products, as well as its decision to pay out a dividend to shareholders for the first time.

AI efforts also boosted Microsoft’s (MSFT) earnings Thursday, with investors likely eager to see what impact the technology will have on Amazon’s (AMZN) earnings next week.

Positioned for ‘Next Wave’ of AI

AI was a key focus of the call, as Google and Alphabet CEO Sundar Pichai spoke at length about Google’s AI plans, from the continued development of Gemini, Google’s most capable AI model, to how generative AI could change Google Search.

Pichai said the company has “the best infrastructure for the AI era,” as Google has already been investing in AI for years. He said the company is testing how it wants to add AI into its core search product, including the addition of AI-generated search summaries for certain questions.

“We’re being measured in how we do this focusing on areas where Gen AI can improve the search experience, while also prioritizing traffic to websites and merchants,” Pichai said.

In addition to its history of AI investments, Pichai suggested Google could be well-positioned for the “next wave of AI innovation” because of its wide customer base, as the company has six products with over 2 billion monthly users, including the approximately 3 billion Android-powered devices around the world.

Investing in AI Is Costly, But Alphabet Says It’s Worth It

As the company has said in prior quarters, and as other companies like Meta have expressed, investing in AI can be costly, as the models require substantial power and expensive equipment to train and run long-term.

However, Pichai said Alphabet is working to “durably re-engineer” the company’s cost base, to maintain healthy margins while investing in AI, and said Alphabet has “clear paths” to monetizing AI through advertising, Google Cloud, and its other subscriptions.

Pichai referenced a number of new products and features the company announced in recent months, including several at its Cloud Next conference earlier this month, as a wide variety of revenue streams that could help boost the company’s future earnings.

Chief Financial Officer (CFO) Ruth Porat said the company’s $12 billion in capital expenditures for the quarter was “driven overwhelmingly” by investments in Alphabet’s technical infrastructure like servers and data centers to power its AI efforts. She said the increased spending “reflects our confidence in the opportunities offered by AI across our business.”

AI Helps Advertisers, and Alphabet’s Advertising Revenue

Advertising represents the largest source of Alphabet’s revenue, and Chief Business Officer (CBO) Philipp Schindler said generative AI is helping Alphabet “deliver on the premise of getting the right ad to the right user in the right moment.”

Schindler noted generative AI can help advertisers create advertising content more efficiently through Google’s products like Gemini that can generate text and images with simple prompts.

The company is also continuing to experiment with new ads, like placing shopping ads alongside search results if a user is searching for a specific product, as well as allowing retailers to “convert intent into action” by displaying whether a product is in stock online or in store directly in a search result in 23 countries.

Alphabet Is Now a Dividend-Paying Stock

While only briefly mentioned in Alphabet’s earnings call, the introduction of a dividend for the first time in Alphabet’s history helped propel the tech giant’s stock price higher in extended trading Thursday.

“Given the extraordinary opportunities ahead, we view the introduction of the dividend as further strengthening our overall capital return program,” Porat said on the call.

Alphabet also announced a new stock buyback program, allocating up to $70 billion to repurchase its own shares.

Alphabet shares were up 11.8% at $174.42 as of 7:40 p.m. ET following its earnings call and have gained about 25% since the start of 2024.