SAN FRANCISCO (AP) — Google’s digital ad sales continued to grow at a healthy clip during the holiday season, but that wasn’t enough to offset investors’ worries about whether its big bet on artificial intelligence will be lucrative as once envisioned.
The October-December results released Tuesday by Google parent Alphabet Inc. showed the company is continuing to reap even more profits from its dominant search engine and other peripheral services.
Alphabet earned $26.5 billion, or $2.15 per share, during last year’s final quarter, a 28% increase from the same time during the previous year. Revenue rose 12% from the previous year to $96.5 billion. The earnings eclipsed analyst forecasts of $2.13 per share, but the revenue fell slightly below projections, according to FactSet Research.
More importantly, revenue growth in the Google Cloud division tethered to the AI craze wasn’t as robust as had been anticipated.
That letdown contributed to a more than 8% drop in Alphabet’s stock price after the numbers came out. The downturn reversed a recent rally that had elevated Alphabet’s shares to a new all-time high earlier Tuesday during the regular trading session.
“The reaction underscores concerns that rivals like Microsoft, with its OpenAI partnership, are better positioned to convert AI hype into revenue,” said Investing.com analyst Jesse Cohen.
But the AI-generated overviews that Google has been increasingly displaying in at the top of its search results appeared to be helping to bring in more advertising. Google’s ad sales climbed 11% from the previous year to $72.5 billion to exceed analyst estimates.
“The early signs suggest that AI is working for Google,” said Jim Yu, CEO of BrightEdge, which helps websites rank higher in search results. “What it does for Google is keep more of the digital experience happening within its search engine. And by the time they send someone to another site, shoppers and readers have already gotten further down their journey. So that visitor is worth a lot more to an advertiser.”
But Google also has spending billions of dollars on its AI expansion, a huge investment that some investors are questioning after t he Chinese startup DeepSeek found an effective way to deploy similar technology at a fraction of the cost. Alphabet is expecting its ongoing AI expansion to increase its capital from about $60 billion last year to $75 billion this year.
Alphabet CEO Sundar Pichai sought to reassure investors all that spending will pay off during a Tuesday conference call by emphasizing the way AI is helping to boost Google’s fortunes by attracting more search traffic and making other services more popular.