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In case there was any thought tech giants would ease up on AI spending sprees, Alphabet (GOOG, GOOGL) threw another $10 billion into the mix just to be sure.
The company’s stellar quarter — flashing strength in advertising and its cloud businesses — appeared to more than justify the amped up investment, which is now set to reach $85 billion this year. But the Google parent also succeeded in advancing another urgent mission: convincing investors it can transition its search empire into an AI-infused one.
AI Overviews, Google’s search product that summarizes key information on a topic or question, has grown from 1.5 billion monthly users to more than 2 billion, underscoring its strong adoption.
Google executives have framed its enhanced search features as an evolution of the company’s core business. Along with AI Mode — an expansion of Overviews — the company says the tools are driving people to search even more. Double-digit revenue growth in search suggests AI is expanding the market.
“We like the integration of AI features (AI Overviews and AI Mode) within Google Search and view these additions as important in maintaining Google Search’s relevance, especially with younger users, while opening up new generative AI monetization vectors for the firm,” said Malik Ahmed Khan, equity analyst at Morningstar, in a note on Thursday.
The knock on Google’s AI approach is that in trying to fend off a new wave of AI-powered answer engines, like those from Perplexity and OpenAI, its reinvention will cannibalize search revenues.
But Google’s advertising business has proven resilient, even as AI adoption has grown.
“Another stable quarter for Search results increases our confidence in the AI transition and should ease concerns on a potential revenue reset,” said Bank of America analysts Justin Post and Nitin Bansal in a note Thursday.
It also helps that Google’s cloud business is a force of its own. Executives said the cloud unit now touts an annual revenue run-rate of more than $50 billion, which means questions over AI monetization don’t have to be answered right away. Besides, Google’s AI-powered rivals aiming to disrupt the web browser also have to become advertising powerhouses to take on the search giant’s dominant position.
Of course, Google’s race to integrate AI into the search experience has broader implications for online publishers and the way people interact with the web.
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