Alphabet, the parent company of search giant Google, reported second-quarter earnings that outpaced analysts’ expectations and said its prodigious investment is creating visible results. This is expected to set the tone for the next phase of Silicon Valley’s AI race. Alphabet reported 14% revenue growth for the three months ending in June, including a 12% increase in search revenue and 32% in cloud computing. All comforting numbers for investors who might have feared that economic weakness or the impact of tariffs on advertisers could be weighing on growth.
AI Overviews, the algorithm-generated blurbs that often appear front and center when users ask questions, have not come to pass. Google says AI Overviews are driving 10% more queries in searches where they appear and haven’t dented revenue. Paid clicks were up 4% year on year, the company said in a call with analysts on Wednesday.
In reality, the company can’t do otherwise. Rivals like Meta Platforms and OpenAI are cash rich and investing hand over fist to win the AI arms race. As well as data centres, there are devices to think about: Meta is ahead in the race to produce AI-powered glasses, OpenAI is cooking up a new gadget with former Apple design tsar Jony Ive, and Google has inked a fledgling partnership with eyewear-maker Warby Parker.
Google’s future hangs on bigger and vaguer considerations, such as the effect of CEO Sundar Pichai’s massive spending plans on its AI products, users, and their response to revenue. The big question is what the effect of these products will have on its users and their response to revenue.
