Alphabet shines in Q2 earnings; current CFO Ruth Porat to assume new role

Alphabet, the parent company of Google, achieved impressive second-quarter profits that exceeded Wall Street expectations, delighting investors and causing the company’s shares to surge by 8 per cent in after-hours trading. The robust performance was attributed to steady demand for Alphabet’s cloud services and a rebound in advertising revenue.

The company’s long-time CFO, Ruth Porat, who played a pivotal role in overseeing Alphabet’s remarkable growth since her appointment in 2015, will be transitioning to a new role. Starting from September 1, she will assume the position of Chief Investment Officer and President. During this period, she will also lead the planning efforts for the year 2024 while the company searches for a new finance chief to fill her previous role.

Porat’s new responsibilities will include overseeing Alphabet’s “Other Bets” portfolio, which involves exploring more innovative and riskier hardware and services ventures. Additionally, she will play a key role in managing the company’s global investments.

The advertising landscape has significantly influenced the company’s performance, and advertisers’ shift in spending towards more established platforms like Google has boosted Alphabet’s revenue. This trend was similarly observed in Meta Platforms, formerly known as Facebook, where shares rose by as much as 2 per cent following their own positive results announcement.

One significant area of growth for Alphabet is the development of generative artificial intelligence software. This advanced technology is expected to be the next breakthrough for Big Tech. The company unveiled AI products at its annual I/O developer conference in May and made enhancements to its search engine by incorporating generative AI.

However, implementing such cutting-edge AI technology comes at a cost. In the second quarter, a substantial portion of Alphabet’s capital spending was allocated to servers and a “meaningful investment” in AI computing, as stated by CFO Ruth Porat during a conference call.

“Not only did Google deliver fantastic earnings per share, exceeding expectations at a time when investors were questioning its ability to keep up with other tech giants amid the AI frenzy, it also did so by a considerable margin. This strongly indicates that a new growth phase for the giant is likely underway,” Thomas Monteiro, senior analyst at said.

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Alphabet’s CEO, Sundar Pichai, revealed during the call with analysts that advertising will be integrated into the company’s revamped search, powered by AI. The company is actively testing various formats and placements for ads within its AI-powered search, signalling an upcoming evolution in its advertising strategy.

As the company continues to invest in AI, its cloud business also saw considerable growth. Revenue at Google Cloud, one of the leading cloud service providers, rose by 28 per cent to $8.1 billion, surpassing expectations. Analysts anticipate further growth in cloud business towards the end of the year as macro uncertainties begin to clear.

Investors are particularly optimistic about AI’s potential to become a major driver of growth for cloud businesses in the coming year, with Microsoft’s Azure leading the way, followed closely by Amazon’s AWS and Google Cloud.

YouTube, a subsidiary of Google, also contributed to Alphabet’s overall revenue growth, with ad sales from the video service unit rising by 4.4 per cent to $7.67 billion.

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