Google Cloud hits $8.4bn in sales as CEO Pichai touts AI

‘As we expand access to our new AI services, we continue to make meaningful investments in support of our AI efforts,’ says Alphabet CEO Sundar Pichai

Google parent company Alphabet, which is celebrating the 25th anniversary of the founding of Google, Tuesday reported solid momentum in its cloud business with $8.4bn in quarterly sales.

AI and generative AI are making their presence felt across a wide range of Alphabet's technologies, said Alphabet CEO Sundar Pichai (pictured) during his prepared remarks on the call.

"It's all part of our focus on making AI more helpful for everyone," Pichai told financial analysts and other Alphabet watchers on the company's second fiscal quarter 2023 financial analyst conference call.

First, he said, AI is improving knowledge and learning, including Alphabet's work with its Search Generative Experience, which he described as an experiment to bring generative AI capabilities into search.

"We've learned a lot from people trying it, and we have added new capabilities like incorporating videos and images into responses and generating imagery," he said. "We've also made it easier to understand and debug generative code. Direct user feedback has been positive, with strong growth and adoption."

Alphabet is prioritising approaches that add value for users, send valuable traffic to publishers, and support a healthy open Internet, Pichai said.

"With generative AI applied to search, we can serve a wider range of information needs and answer new types of questions, including those that benefit from multiple perspectives," he said. "We are surfacing more links with SGE and linking to a wider range of sources on the results page, creating new opportunities for content to be discovered."

Alphabet's second focus area is on boosting creativity and productivity, where Google Bard has proved particularly helpful, Pichai said.

"Bard can now integrate with Google apps and services showing relevant information from Workspace Maps, YouTube, and Google flights and hotels," he said. "Earlier this month, we announced Assistant with Bard, a personal assistant powered by generative AI. It combines Bard's generative and reasoning capabilities with Assistant's personalised help. You can interact with it through text, voice, or images. And in the coming months, you will be able to opt in on Android and iOS mobile devices."

Google's third major focus is enabling developers, businesses, and other organisations to build their own transformative products and services, Pichai said. Stating thousands of customers and partners are already using Google Cloud to capture the potential of AI.

The fourth, Pichai adds, is building and deploying AI responsibly so everyone can benefit from it.

"One area we are focused on is making sure people can more easily identify when they are encountering AI-generated content online," he said. "Using new technology powered by Google DeepMind SynthID, images generated by Vertex AI can be watermarked in a way that is invisible to the human eye without reducing the image quality. Underlying all this work is the foundational research done by our teams at Google DeepMind and Google Research."

Investing in AI long-term

AI will continue to be a long-term investment focus for Alphabet, Pichai said.

"As we expand access to our new AI services, we continue to make meaningful investments in support of our AI efforts," he said. "We remain committed to durably re-engineering our cost base in order to help create capacity for these investments in support of long-term sustainable financial value. Across Alphabet, teams are looking at ways to operate as effectively as possible focused on their biggest priorities."

On the Google Cloud side, over 60 per cent of the world's 1,000 largest companies are customers, Pichai said.

Between the second and third quarters, the number of active generative AI projects on Alphabet's Vertex AI training, testing, and development platform grew by 700 per cent, Pichai said.

He also cited the power of Google's Duet AI AI-powered collaboration platform that was created using Google's leading large foundation models and trained to help users be more productive on Google Cloud.

"We continue expanding its capabilities and integrating it across a wide range of cloud products and services. … Companies are increasingly using AI for the purpose of analysing data," he said. "And customers are choosing Google Cloud because we are the only large cloud provider with a unified platform to analyse structured and unstructured data."

Fiscal Q3 results

For its third fiscal quarter 2023, which ended September 30, Alphabet reported total revenue of $76.69bn, up 11 per cent over the $69.09bn the company reported for its third fiscal quarter 2022.

This included Google Cloud revenue of $8.41bn, up 22 per cent over the $6.87bn the company reported for the year-ago quarter. Alphabet stock sank six per cent in after-hours trading Tuesday as cloud revenue came in slightly below Wall Street expectations.

Google Cloud reported operating income of $266m, up significantly from the $440m loss the business reported last year.

The Google Cloud business includes infrastructure and platform services, collaboration tools, and other services for enterprise customers. The organisation generates revenue from fees received for Google Cloud Platform services, Google Workspace communication and collaboration tools, and other enterprise services, the company said.

US revenue for the quarter was $36.35bn, up from $33.37bn.

Total revenue beat analyst expectations by $980m, according to Seeking Alpha. However, Google Cloud revenue missed analyst expectations, the only segment that missed, Seeking Alpha said.

Alphabet also reported GAAP net income for the quarter of $19.69bn or $1.55 per share, up from $13.91bn or $1.06 per share. That beat analyst expectations by 10 cents per share, Seeking Alpha reported.