AI Adoption Cited as Main Cause of Alphabet's Revenue Spike

Alphabet is experiencing much demand for its AI and cloud services, in addition to its advertising market, causing its Q2 revenue to balloon by 26.4% and 10.8%, according to LSEG data.

Having been the first big tech company to report its second-quarter results in 2024 so far, it suggests that Alphabet is continuing to charge ahead with its increasing AI services. In May 2024, subsidiary Google introduced a range of AI-powered summaries in its Search platform and made some developments to Gemini AI to better compete with competitor models.

The company’s AI investments have placed it at the forefront of enterprise digital transformation, with more than 60% of funded generative AI (Gen AI) start-ups and 90% of Gen AI unicorns currently customers of Google Cloud alone.

Google in particular has been boosting its cloud infrastructure investments, which lead to its cloud business generating more than US$33bn in revenues in 2023.

Powering ahead with AI advancements

Alphabet's investment into AI research and development (R&D) was significant in 2023, with the company spending more than US$45.4bn on research and development. Statista cites this as a US$6bn increase compared to the previous year.

Alphabet is expecting to spend US$50bn on capital expenditures predominantly focused on AI and cloud infrastructure, showing no signs of slowing down on its AI goals.

The company appears to be pushing ahead with new Google AI capabilities in the coming month, despite recent reports indicating the technology has dramatically increased both its costs and carbon emissions.

Our sister publication Sustainability Magazine reported that Google’s overall GHG emissions have increased by 13% within a year as a result of its AI and data centre energy consumption. Such a revelation has caused questions to circulate over if big tech companies like Google will be able to succeed in making power-hungry AI capabilities sustainable moving forward.

“While we remain optimistic about AI’s potential to drive positive change, we’re also clear-eyed about its potential environmental impact and the collaborative effort required to navigate this evolving landscape,” Google’s 2024 Environmental Report said.

Likewise, company costs are skyrocketing. In the January-March 2024 period, Alphabet’s capital expenditure increased 91% to US$12bn, according to Reuters. Whilst this figure is significantly larger than before, CEO Sundar Pichai has indicated that the AI developments are continuing to boost demand for its cloud and search business.

The news came shortly before it was announced that cybersecurity firm Wiz has called off acquisition talks with Alphabet. There was previous reporting that suggested Wiz would be acquired by the tech giant for roughly US$23bn, which would have been its largest ever acquisition.

Google at a tipping point for sustainable AI development

Moving ahead in 2024, Alphabet is continuing to increase its R&D investments in AI, cultivating an ecosystem around its products. As far as Google is concerned, its AI features are set to develop even further, in the wake of rebranding its Gemini offering to gain more user subscriptions.

In an exclusive interview with Technology Magazine, Google Cloud MD for UK&I Helen Kelisky spoke about AI being a tool to enhance the company’s relationship with customers.

“AI will help our customers not only sustain their business but potentially reframe the value they deliver for their customers, and to retain their relevance,” she said. “With the marriage of cloud computing and AI, Google Cloud is focused on delivering AI solutions that are grounded in proprietary data and enable businesses to innovate and transform their operation.”

She added: “With Google’s AI models, we continue to deliver purpose-led solutions for every business need, whether it is building a customisable AI stack through Vertex, or automating everyday tasks with Gemini.”

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