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Stocks plunge, Nasdaq drops more than 3.5% in worst day since 2022 as Tesla, Alphabet trigger Big Tech sell-off
Alphabet (GOOG, GOOGL) fell more than 4% on Wednesday as investors kept tabs on the company’s increased AI spending, while disappointing YouTube advertising revenue was also a sore point for investors following the Google parent company’s latest quarterly release.
Dan Howley of Yahoo Finance reports:
Google parent Alphabet (GOOG, GOOGL) reported its fiscal second-quarter earnings after the market close on Tuesday, beating analyst estimates on both revenue and profit as its cloud business continues to gain traction, surpassing the $1 billion mark in operating profit for the first time.
For the quarter, the company saw earnings per share of $1.89 on revenue of $84.7 billion. Analysts were anticipating earnings per share of $1.85 on revenue of $84.3 billion, according to data compiled by Bloomberg. That’s a jump from the same period last year of 31% and 14%, respectively, when the company reported earnings per share of $1.44 on revenue of $74.6 billion.
Advertising revenue topped $64.6 billion, versus analysts’ expectations of $64.5 billion, and up from $58.1 billion last year. YouTube’s ad revenue, however, fell short, with the segment bringing in $8.66 billion, versus expectations of $8.95 billion.
Google saw cloud revenue of $10.35 billion and operating profit of $1.17 billion. That’s better than analysts’ expectations of $10.1 billion and operating profit of $982.2 million and higher than the $8 billion in revenue and $395 million in operating profit the company reported in Q2 2023.
Alphabet shares are up 30% year to date. Shares of rivals Microsoft (MSFT) and Amazon (AMZN) are up 18% and 22% year-to-date, respectively. All three companies are pouring money into building out their generative AI capabilities, spending lavishly on data centers capable of powering the AI models they offer through their cloud services platforms.
In the second quarter, Alphabet reported spending $2.2 billion on building AI models across its DeepMind and Google Research organizations. That’s up from $1.1 billion in the second quarter of 2023. When exactly AI will start generating revenue for Google’s cloud business, let alone its advertising segment, is still up in the air.
“It is still too early to count on the benefits of AI, as most [companies] stay in pilot mode and AI material [revenue] is most likely to occur in 2025-26,” Jefferies analyst Brent Thill wrote in a recent client note ahead of Alphabet’s earnings announcement.