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Last earnings season, Mark Zuckerberg — gleaming with his new curls and gold chain — seemed to walk over his struggling Big Tech peers, embracing Wall Street’s praise as Meta (META) showed that spending on AI dreams isn’t such a drag, as long as the rest of the business is impressive.
For Meta, it helped to have a dominant advertising machine. And as Alphabet (GOOG, GOOGL) reminded the market this week, it has one too.
That business delivered on Tuesday for Google parent Alphabet, and once again, when it’s humming along and raking it in, people don’t really worry as much about all the zeros at the end of the AI department’s walking-around money figure.
So far, that’s been the resounding message on Wall Street as analysts up their price targets and investors clamor to get in on the stock, which is still priced at a discount relative to other tech platforms.
If questions over returns on investment seemed to dampen the excitement over AI in recent months, Google, in a Zuckerberg redux, didn’t answer them so much as move beyond them. After profits rose close to 40% compared to last year, sending shares up 5%, Wall Street appeared to forget why they were being asked in the first place.
The massive spending on AI infrastructure isn’t dwindling, either, Anat Ashkenazi, Google’s new CFO, said on the earnings call. She noted that next year will come with another capex increase. But Google’s consensus-beating performance bolstered the view that the company is spending in the right ways and winning new business in return.
“AI feels increasingly like a well-managed tailwind, improving effectiveness of ads, drawing in Cloud customers, and driving internal efficiencies,” Jefferies analysts wrote in a note after earnings. “Outlook appears positive, with consumers, advertisers, and enterprises continuing to spend.”
Google’s powerful position and array of business lines also quell concerns over a regulatory clampdown, even as the Justice Department has suggested a potential breakup of the company.
“We continue to believe the structural risks to Google Search’s dominance are overblown, and we are optimistic on the longer-term prospects of the search business as Google manages through this period of transition,” wrote Wedbush analysts in a note Wednesday.
Even in the worst-case scenario of a search business disruption, Google has other avenues, Jeffrey Wlodarczak of Pivotal Research Group wrote on Tuesday. The company’s likely massive expansion in its high-margin cloud business, along with YouTube growth, will spur solid financial growth, he said.
The spending worries haven’t disappeared, of course. And Google executives made a point of mentioning how the fruits of their AI investments are still in the early stages, as business customers and internet users embrace new tools.
It’s still not clear what problems generative AI is supposed to solve. Or how, in Google’s case, the technology will ultimately shape its core search business. But for the moment, even minimal payback is more than enough.
Hamza Shaban is a reporter for Yahoo Finance covering markets and the economy. Follow Hamza on X @hshaban.
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