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4 KEY TAKEAWAYS FROM GOOGLE PARENT ALPHABET'S EARNINGS CALL


By
Naomi Buchanan

Full Bio
 * 
 * 

Naomi Buchanan is a reporter at Investopedia breaking down news stories that
impact investors.
Learn about our editorial policies
Published July 23, 2024
06:46 PM EDT
 * 
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Investopedia / Julie Bang

After Google parent Alphabet (GOOGL) reported second-quarter results that beat
analysts' expectations driven by Google Cloud and search strength, executives
updated investors on the company's investments in artificial intelligence (AI),
outlook, and more.





CEO SUNDAR PICHAI SAYS RISK OF UNDERINVESTING IN AI OUTWEIGHS OVERINVESTING
FEARS

As big tech companies boost capital expenditures to invest in AI, raising
concerns about higher costs, Alphabet CEO Sundar Pichai said "the risk of
underinvesting is dramatically bigger than the risk of overinvesting for us
here."



Pichai said that in a situation where the company is overinvesting in AI,
current investments directed at infrastructure solutions like data centers could
also be used for other tasks.



The CEO added that "not investing to be at the front" of the AI race "definitely
has much more significant downsides" for Alphabet.





INCREASED SEARCH USAGE AND USER SATISFACTION WITH AI OVERVIEWS

Pichai also said the company is seeing "positive trends" from rolling out its AI
Overview tool, which summarizes the content from search at the top of the page.



The company reported higher search usage and increased user satisfaction, with a
rise in engagement from younger users driven by AI Overviews.



"AI Overviews continue to provide valuable options for people to take action and
connect with businesses beyond AI Overviews" as "AI expands the types of queries
[Google is] able to address and opens up powerful new ways to search," Pichai
said.




OPERATING MARGINS TO GROW IN FISCAL 2024, BUT COULD LAG IN Q3

Alphabet CFO Ruth Porat told investors that while the company expects to deliver
operating margin expansion for the full fiscal 2024 year compared to 2023, the
third quarter could be negatively affected by depreciation and higher expenses,
in part thanks to AI investments.



Increased spending associated with the timing of payments for Alphabet's
continued AI investments and an upcoming Google Pixel launch were among the
reasons cited for the rise in expenses.



Porat said that Alphabet's capital expenditures in the second quarter totaled
$13 billion, and the company expects spending for the rest of 2024 to be around
$12 billion quarterly.




GOOGLE CLOUD STRENGTH SUPPORTED BY AI OFFERINGS

Porat said generative AI offerings are "adding to the strength of the [cloud]
business," which helped drive the company's better-than-expected results, with
the majority of Google Cloud's top 100 customers using Alphabet's genAI
solutions.



In the second quarter, Google Cloud's margin improved, which Porat said
"reflects the revenue strength that [the cloud segment] delivers and all of the
[company's] efficiency efforts."



Alphabet said it is prioritizing cost management as it increases spending to
invest in AI.



Shares of Alphabet were down roughly 1.6% at $178.80 in extended trading as of
6:40 p.m. ET Tuesday after the call.


Do you have a news tip for Investopedia reporters? Please email us at
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