Google results: advertising still lining the pockets at Google, but AI is on the rise

Alphabet provided a boost to financial markets late on Thursday after its earnings report smashed forecasts. The company reported $90.2bn in quarterly revenue, higher than the $89.2bn expected, and a 12% increase YoY. The company’s profitability also surpassed expectations, with $2.81 earnings per share, vs. expectations of $2.01. This has helped boost the stock in post market trading. It is currently trading nearly 4% higher, after rallying 2% on Thursday, along with broader US stock markets.

Google has rallied 3% so far this week, before the post-earnings move higher in the share price, and the stock is on track to claw back some of the 16.4% that it has lost YTD.

Search and ad revenue are still the starts of the show

Google is the first of the mega cap US tech stocks to report results. Investors want to see how big tech can monetize AI, and Google is moving in the right direction. Although Google’s search engine is the big hitter when it comes to earnings, generating $50.7bn in sales last quarter, Google cloud, which includes generative AI solutions, AI infrastructure and GCP products, generated $12.3bn in sales, which is a 28% increase YoY. Google Could is now contributing 13.59% of revenue, up from 12.39% in Q4 2024. While this is slightly lower than some expected, it is at least moving in a positive direction.

Gemini 2.5, good for now, but needs to do better in Q2

These results are a clear sign that Google’s investments in AI are paying off and they come at a good time for the company. It launched Gemini 2.5, Google’s most advanced AI model to date, during Q1 when markets were tumbling, and concerns started to grow about a US recession. The fact that cloud revenues are growing is positive, however, investors will want to see Gemini 2.5 boost revenue figures even more in Q2, so expectations are high for the coming months. There was good news relating to the AI features in Google’s search engine. AI Overviews, which is part of Google’s search features, now has 1.5 bn users per month, which could silence some of the concerns about how AI would eat away at Google’s search business.  

Google’s earnings will help Google, not all of big tech

Google’s results are boosting its stock price; however, the rest of big tech is mostly flat to lower in the post market. This suggests that the market is no longer moving in unison, and the Magnificent 7 may be diverging. Google is being rewarded for stronger than expected results, driven by its search engine business, which has some AI features, but is not wholly reliant on AI to generate revenues. This is not the case for Nvidia, for example. It needs the AI revolution to grow at pace to power the sales of its chips.  Google’s results do not give clarity on AI demand, and we will have to wait for Nvidia to report results on 28^th May to find out how they are faring.

Buybacks and dividends help boost investor sentiment

Alphabet continues to boost spending, the cost of revenues rose from $33.71bn in Q1 2024, to $36.36bn in Q1 2025. R&D costs also rose to $13.55bn. Marketing costs fell, although total costs rose to $59.62bn, up from $55.06bn a year ago. Investors may not worry too much, since Alphabet’s capex plans have been well-signaled in advance, and free cash flow grew by more than $7bn in the quarter, which suggests that the pace of capex spend is slowing from its peak in mid-2024. Other sweeteners in this earnings report included a 5% increase in the dividend, and a $70bn share buy back plan.

Overall, there is not much to dislike in this report, however, we do not expect it to give renewed hope about the future of the AI revolution. Instead, the market is likely to differentiate between Big Tech based on their individual earnings reports. For now, the market likes what it is hearing from Google.