Alphabet earnings miss reflects first real sign that AI is taking a bite out of search
Wall Street hammered Alphabet for an earnings miss that included weaker-than-expected revenue out of the company's core business.
TL;DR
- Alphabet's search revenue missed estimates for the second straight quarter, growing 12% year-over-year but falling below expectations.
- Search query growth was reported as the strongest in five years, creating a gap between usage and revenue that analysts link to the rise of AI.
- Alphabet executives cited foreign exchange as the primary reason for the search revenue deceleration.
- The stock dropped significantly after the earnings report, reflecting weak results and negative free cash flow.
- Google is investing heavily in AI infrastructure and services, with its Gemini model aiming to keep it competitive and enhance its advertising business.
- AI capabilities are being integrated into Google's advertising products, leading to increased asset generation for advertisers.
- Analysts from UBS and Mizuho expressed concerns that AI could cannibalize search revenue.
- Alphabet's cloud business, driven by AI infrastructure demand, saw revenue more than double, with a substantial backlog indicating future growth.
- The company is maintaining significant capital expenditure forecasts to support AI development and infrastructure, including its Tensor Processing Units (TPUs).
- Concerns are resurfacing that AI's impact on Google's core business may be starting to manifest after previous fears.
- Analysts suggest reassessing the implications of 'agentic commerce' for Google.