Google Says Deep AI Investments Boost Ad Sales and Reassure Investors

Alphabet, the parent company of Google, reassured nervous tech investors on Thursday that its AI investments were driving profits at its vital ad business, downplaying any immediate effects of global economic turmoil.

The search giant’s first-quarter revenue and profit exceeded forecasts, and it announced that it will repurchase $70 billion worth of stock, increasing the market value of its shares by 4% and by $75 billion.

Alphabet gave investors in Meta and Amazon hope when it confirmed its ambitious AI build-out plans and supported its $75 billion capital expenditure projection for the year. Amazon’s shares also increased in aftermarket trading.

Businesses are reconsidering their advertising expenditures as a result of concerns about an economic slump sparked by US President Donald Trump’s trade strategy. Additionally, it has fuelled investor concerns that the high costs of the US-China tit-for-tat tariffs may force tech companies to halt or stall their ambitious AI infrastructure build-outs.

Big Tech has persisted in defending its substantial expenditures in AI, claiming that they were required to stay competitive. However, experts have noted that there are preliminary indications that IT giants are reducing their commitments to new data centres.

“I thought that the market’s narrative surrounding infrastructure spending was especially unfavourable, implying that AI investments had reached their pinnacle and that this was an indication that the bubble was popping. And I believe Google told us today that it’s completely untrue,” Will Rhind, CEO of GraniteShares, a worldwide ETF provider, stated.

Google’s core ad business, which accounts for almost three-quarters of its total revenue, saw an 8.5 percent increase in revenue to $66.89 billion in the quarter. This was slower than the 10.6 percent increase from the previous quarter, but still higher than the 7.7 percent increase analysts had predicted.

However, on a conference call, Philipp Schindler, the chief business officer of Google, informed analysts that the firm was not unaffected by macroeconomic instability.

Referring to Trump’s order this month to terminate a trade rule that permits low-value packages from China and Hong Kong to enter the US duty-free, he stated, “The changes to de minimis exemption will obviously cause a slight headwind to our ads business in 2025, primarily from APAC (Asia Pacific)-based retailers.”

According to industry statistics, Temu and Shein, two Chinese e-commerce firms that are among the largest US advertisers, are drastically reducing their US digital ad expenditure. This might negatively impact ad income at Meta, the parent company of Google and Facebook.

Google’s advertising appeal is largely due to its incorporation of AI, which enables advertisers to conduct more successful campaigns and receive higher returns on their investment.

According to CEO Sundar Pichai, there are currently 1.5 billion monthly users of AI Overviews, which are summaries that show up above conventional hyperlinks to pertinent webpages. Google launched a new AI-only search mode in March.

According to Edward Jones analyst David Heger, “search revenue growth is still strong despite concerns about generative AI platforms, like ChatGPT, impacting the search business.”

In contrast to the 30.1 percent growth seen in the previous quarter, Google Cloud reported a 28 percent increase in revenue to $12.26 billion. Based on LSEG’s data compilation, analysts anticipated that the unit would post revenue of $12.27 billion.

In contrast to experts’ average expectation of $89.12 billion, the company reported total sales of $90.23 billion for the first quarter.

Based on LSEG data, Alphabet recorded a profit of $2.81 per share for the January-March quarter, exceeding estimates of $2.01 per share. Additionally, the company announced that it would increase its quarterly dividend to 21 cents per share, a five percent increase. 

Compared to the same period last year, the company’s capital expenditures increased by 43 percent to $17.20 billion in the quarter.