The competition in the field of artificial intelligence is intensifying, with major tech companies increasing their investments to vie for dominance in this transformative technology. In this highly-watched contest, besides standout companies like OpenAI and NVIDIA, Alphabet (GOOG), Google’s parent company, is steadily advancing to the forefront of the next wave of technological innovation, leveraging its solid foundation and diversified strategy.
As the core business of Alphabet, Google Search remains the cornerstone of its revenue and profits. Although there were external concerns that the rise of large language models might impact its traditional search advertising model, the actual situation has demonstrated its remarkable resilience. In the latest third-quarter earnings report, the company delivered outstanding performance, with revenue breaking the $100 billion mark for the first time, reaching $102 billion, and earnings per share far exceeding market expectations.
During the quarter, revenue from Google Search and other businesses increased by 15% year-over-year to $56.6 billion. This growth was driven by Alphabet’s successful integration of its own AI models into the search engine, enhancing user experience through features like “AI Overviews.” This not only significantly boosted search volume but also attracted more younger users. Additionally, new AI products like AI Max are opening up new revenue streams for Google. By analyzing massive amounts of data in real-time and intelligently managing advertising campaigns, these products enable more precise matching of ads with user needs, thereby consolidating its dominance in search.
Google Cloud demonstrates significant long-term growth potential, with its services primarily comprising Google Cloud Platform and Google Workspace. The former provides robust cloud computing infrastructure, while the latter is a suite of cloud-based collaboration tools. In the third quarter, Google Cloud revenue reached $15 billion, achieving a 34% year-over-year growth, with the growth rate continuing to accelerate.
Even more encouraging to the market is the rapid expansion of its cloud business scale. Since the beginning of this year, the number of cloud deals valued at over $1 billion signed by the company has already surpassed the total number from the past two years combined. At the same time, the backlog of orders for the cloud business surged significantly to $155 billion, primarily driven by strong market demand for GPUs, Google’s self-developed Tensor Processing Units, and AI solutions based on the Gemini platform. To support future growth, Alphabet is continuously increasing its investment in infrastructure such as data centers.
At the infrastructure level, Alphabet is strengthening its competitiveness through self-developed chips. Google is about to launch its seventh-generation Tensor Processing Unit (TPU), Ironwood, to the public market. This fully internally developed chip is optimized for AI workloads, with performance reportedly more than four times that of the previous generation, capable of efficiently handling various complex tasks from model training to real-time inference.
This move is seen as a direct challenge to NVIDIA’s dominance in the AI chip market. The potential advantages of Google’s custom chips in terms of price, performance, and efficiency have already attracted major clients like Anthropic, which plans to use a large number of the new TPUs to run its models. This marks a critical step for Google in the AI infrastructure race against competitors like Microsoft and Amazon.
In summary, the AI revolution is reshaping the technology landscape, and Alphabet, with its stable and profitable businesses in areas like Search and YouTube, combined with the strong growth of its cloud services, has become a force to be reckoned with. The company is actively leveraging its technological advantages and infrastructure investments to fully capture new opportunities in the AI field. As AI technology becomes increasingly integrated into daily life, the importance of Google Cloud will continue to grow, making Alphabet a noteworthy high-quality growth stock.
