SAN FRANCISCO (AP) — Google’s digital advertising revenue continued to increase steadily over the holiday season, but concerns about the profitability of its artificial intelligence (AI) investments weighed on investor sentiment. Alphabet Inc., Google’s parent company, reported its results for the October-December period on Tuesday, highlighting significant profits from its search engine and other services.
Alphabet posted earnings of $26.5 billion, or $2.15 per share, in the final quarter of last year, marking a 28% jump from the previous year. While revenue reached $96.5 billion, a 12% increase from the previous year, it fell slightly short of analyst expectations. The company’s stock price fell more than 8% following the results, reversing recent gains that had driven Alphabet’s shares to record highs.
The slower-than-expected growth in Google Cloud revenue tied to the AI sector contributed to the market’s reaction. Analysts expressed concerns that competitors like Microsoft, with its OpenAI partnership, might be better positioned to monetize AI technologies.
Despite these challenges, Google’s AI-driven enhancements to search results seemed to drive increased advertising revenue, with ad sales climbing to $72.5 billion, surpassing estimates. Jim Yu, CEO of BrightEdge, noted that AI was enhancing the digital experience within Google’s ecosystem, making visitors more valuable to advertisers.
However, Google’s significant investments in AI expansion have raised questions among investors, especially as rival technologies emerge at lower costs. Alphabet plans to increase its AI-related capital expenditure from $60 billion in the previous year to $75 billion in the current year.
During a conference call, Alphabet CEO Sundar Pichai emphasized the positive impact of AI on Google’s business, highlighting increased search traffic and user engagement. The company has been rapidly developing and launching products, aiming to leverage AI to drive growth.
Amidst the quarterly results, Google updated its AI principles to potentially allow for broader use of the technology, including areas previously restricted. The revised guidelines removed prior restrictions related to AI use in weaponry or surveillance. Pichai did not address this change during the conference call.
In addition to AI concerns, Google is also facing regulatory scrutiny in the U.S., its largest market.
After a thorough assessment of the evidence presented in a high-profile trial, a federal judge made a groundbreaking declaration last year that Google’s search engine is operating as an illegal monopoly, raising concerns about potential revenue effects. This pivotal decision has now paved the way for regulators to potentially mandate Google to divest its Chrome web browser business. Court proceedings to determine the appropriate penalties for Google’s market manipulations in the search sector are due to commence in April, with an expected ruling before the autumn season.
In addition to the legal challenges confronting its search engine operations, Google has also been directed to dismantle the protective barriers surrounding its Play Store for Android smartphone applications. However, this particular verdict is currently suspended as Google pursues an appeal process. Moreover, Google is awaiting a judgment in an antitrust trial in Virginia that centers on the technology underpinning its digital advertising network.
