Google and MS Surprise with Earnings... "Google Defends Search Dominance, Establishes New AI Position"

Google and Microsoft (MS), both betting their lives on the artificial intelligence (AI) race, have each posted earnings that exceeded market expectations.

Google (Alphabet) announced on the 25th (local time) in its earnings report that its Q2 revenue this year increased by 7% year-on-year to $74.6 billion, surpassing the market forecast of $72.82 billion. Earnings per share also exceeded expectations at $1.44 compared to the forecast of $1.34.

Predictions that the ChatGPT craze would impact Google's advertising revenue proved incorrect. Advertising revenue, which is affected by the search market, rose 3.3% year-on-year to $58.14 billion. This broke the negative growth trend seen in Q4 last year and Q1 this year. Google's advertising revenue accounts for 80% of its total revenue. YouTube advertising revenue also recorded $7.67 billion, increasing by more than 4% compared to a year ago. In particular, the cloud segment posted $8.03 billion, a 28% increase from the same period last year.

In a conference call following the earnings announcement, Google revealed that Ruth Porat, Chief Financial Officer (CFO), will take on the newly created role of President and Chief Investment Officer (CIO) starting this September. Porat will continue to serve as CFO until a successor is found. The new position will lead investments related to AI business. Porat, a Wall Street veteran and female executive, spent 28 years at Morgan Stanley and is known as a financial expert. Since joining Google, she has been credited with leading major changes equivalent to a second founding of the company, including the transition to a holding company and the largest restructuring in the company's history. The Wall Street Journal (WSJ) analyzed that "Porat will be responsible for Alphabet's investment strategy related to AI businesses such as the autonomous vehicle company Waymo in her new role," and that she will play a key role in Google's transformation into an AI company.

[Image source=AFP Yonhap News]

MS also recorded earnings that exceeded market expectations in both revenue and net income. MS's Q2 earnings per share this year rose 19% year-on-year to $2.69, surpassing the market forecast of $2.55. Revenue increased by 8% to $56.19 billion, also exceeding the market forecast of $55.47 billion.

Expectations for the cloud business drove the earnings growth. Revenue from the Intelligent Cloud segment, which includes the cloud service Azure, was $23.99 billion, a 15% increase from the same period last year. This exceeded the forecast of $23.79 billion surveyed by StreetAccount. However, MS did not disclose Azure's revenue, which could indicate demand in the AI sector. Bloomberg reported that the growth in cloud revenue is due to "increased demand from companies wanting to use OpenAI's AI tools."

However, MS is expected to face a challenge in Q3 this year. Amy Hood, MS CFO, stated that Q3 revenue is expected to be between $53.8 billion and $54.8 billion, which falls short of the market forecast of $54.94 billion. Following this outlook, Microsoft's stock price rose only 1.70% on the day. It then fell nearly 7% in after-hours trading before slightly rebounding. On the same day, Google's stock price surged more than 7%.

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