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Google cloud misses Q3 revenue expectations, Alphabet experiences growth

Written by Thu 26 Oct 2023

Google Cloud missed revenue expectations in Q3 2023, while Alphabet reported stronger than expected results as a whole.

Google Cloud reported a revenue of £6.96 billion ($8.41 billion), compared to a predicted £7.15 billion ($8.64 billion). While this marked a 22.5% increase in Q3 revenue, it was the slowest growth rate since at least Q1 2021.

However, the cloud unit reported an operating income of £220 million ($266 million), a significant improvement compared to an operating loss of £364 million ($440 million) in 2022.

President and Chief Investment Officer at Alphabet and Google, Ruth Porat, said the Google Cloud Platform (GCP) growth continued to be robust in various regions, industries, and product offerings.

The Q3 year-on-year growth rate reflects the impact of customer optimisation efforts,” said Porat.

Porat’s statement suggested users may have adjusted their usage of GCP or scaled back their spending on GCP services, which impacted the growth rate for Q3.

“We continue to invest aggressively, given the significant potential we see, while remaining focused on profitable growth,” added Porat.

On 25 October, shares in Google stock fell 8.14% to £105.61 ($127.61) in the hours after trading, attributed to its cloud underperformance.

Alphabet reported stronger than expected overall revenue for Q3 at £63.45 billion ($76.69 billion). This figure is up 11% year-over-year and above analyst predictions of £62.80 billion ($75.9 billion).

Alphabet attributed the positive financial results to the artificial intelligence-driven innovations across Search, YouTube, Cloud, and Pixel devices.

“We are continuing to focus on making AI more helpful for everyone; there is exciting progress and lots more to come,” said Sundar Pichai, CEO of Alphabet.

Alphabet reported capital expenditure amounted to £6.6 billion ($8 billion). Investments in the company’s technical infrastructure were cited as the primary reason for this significant expenditure.

The largest portion of this expenditure was allocated to servers, indicating a substantial amount of financial resources was used to acquire or upgrade server hardware. The second-largest component of this investment was in data centres, likely to support the growth and expansion of its services and platforms.

The investments in both servers and data centres were driven by a substantial increase in the company’s focus on AI. 

“We continue to invest meaningfully in the technical infrastructure needed to support the opportunities we see in AI across Alphabet and expect elevated levels of investment, increasing in the fourth quarter of 2023 and continuing to grow in 2024,” said Porat.

Recently, Google Cloud and NVIDIA expanded their partnership to develop new AI infrastructure and software to build and deploy massive models for generative AI and speed data science workloads.

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Written by Thu 26 Oct 2023

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