On October 30, Alphabet, the parent company of Google, released its third-quarter earnings report, showcasing an impressive surge in revenue and profit driven by robust growth in cloud computingThe report revealed that the company's investments in artificial intelligence (AI) are beginning to pay off, igniting excitement in the market.

Examining the revenue across different segments, we observe that Alphabet's digital advertising sales rose by 10.4% year-on-year in the third quarter, reaching a total of $65.85 billion, slightly above the analysts' estimate of $65.5 billion

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This represents a slight deceleration from the previous quarter's growth rate of 11.1%, yet it illustrates that Google’s advertising business continues to flourish.

YouTube, specifically, saw its advertising revenue climb to $8.92 billion, up 12.2% year-on-year, exceeding the forecast of $8.89 billion, aided largely by spending associated with the upcoming U.Selections.

“In the third quarter, election-related advertising expenditures provided a modest boost to our performance, particularly on YouTube,” commented Philipp Schindler, Google’s Chief Business Officer, during the earnings call.

Schindler went on to highlight how artificial intelligence is enhancing YouTube's recommendation featuresThe introduction of their AI language model, Gemini, enables YouTube to suggest “more relevant, fresher, and personalized content” to users, demonstrating the intertwined relationship between AI advancements and user engagement.

Google's search business also proved solid, generating revenues of $49.4 billion for the quarter, with a 12.2% increase compared to the previous year, which was above the expected $49.08 billion and slightly down from the 13.8% growth seen in the second quarter.

With a nod to technological advancements, Alphabet CEO Sundar Pichai reported that the company’s image recognition product, Google Lens, is now utilized for over 20 billion visual searches each month, making it one of the fastest-growing search products, especially popular for online shopping.

In terms of cloud computing, Google Cloud reached revenues of $11.35 billion in the third quarter—an impressive 35% increase from the same period last year, also surpassing the forecast of $10.88 billion and benefiting from solid growth of 28.8% in the previous quarter

The robust performance in cloud computing can be largely attributed to the strong AI offerings aimed at enterprise customers.

Meanwhile, Alphabet’s “Other Bets” segment, which includes its life sciences division Verily and self-driving car company Waymo, saw an increase in revenue to $388 million from $297 million in the previous year.

In a significant move, Waymo completed a $5.6 billion funding round last week to expand its autonomous ride-hailing services in Los Angeles, San Francisco, Phoenix, and beyond.

AI took center stage during the presentation, with Alphabet's CEO Pichai indicating that the company’s comprehensive AI products are now operating at scale, leveraged by billions of users, forming a beneficial cycle for the company.

“Alphabet is the first major tech company to report quarterly earnings, and it did not disappoint,” remarked Matt Britzman, a senior equity analyst at Hargreaves Lansdown

“The robust growth in cloud computing reinforces the view that leading cloud providers are well-positioned to benefit from the AI revolution.”

Despite being perceived as lagging in the AI race against formidable competitors like Microsoft, Google has been making strides to bolster its Gemini AI chatbot and refine its AI search capabilities, committing to substantial investments in advancing AI technology.

Analyst Ashkenazi noted that Alphabet’s capital expenditures for 2025 are expected to exceed those reported for the current yearIn the third quarter, capital outlays surged by 62%, reaching $13 billion, with expectations of comparable figures in the fourth quarter.

Furthermore, Ashkenazi indicated that Alphabet plans to employ AI to streamline workflows and manage workforce numbers, building on existing cost-cutting initiatives to maximize operational efficiency.