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Investors cheered the move after Alphabet announced its first-ever dividend along with a $70 billion share buyback and Google’s parent company reported strong growth across its core businesses.
The Silicon Valley giant said Thursday that first-quarter sales rose 15% to $80.5 billion from $69.8 billion a year earlier, beating analysts’ expectations of $79 billion. Net income was $23.7 billion, up 57% from $15.1 billion in the year-ago period and beating analyst consensus of $19.1 billion.
Shares rose about 11% in pre-market trading on Friday, increasing Alphabet’s market capitalization by more than $200 billion, topping $2 trillion and putting it ahead of “Magnificent Seven” peers Microsoft, Apple and Nvidia. will be joining. Microsoft also announced better-than-expected financial results on Thursday.
Alphabet Chief Executive Sundar Pichai said the quarter represented “strong performance in search, YouTube, and cloud,” and Google’s “Gemini Times are progressing smoothly.”
“With our leadership in AI research and infrastructure, and global product deployment, we are well-positioned for the next wave of AI innovation,” he added.
The first quarter dividend was 20 cents per share, making it worth about $2.5 billion. The company added that it “intends to pay quarterly cash dividends in the future.” This is a symbolic policy shift for the tech giant, which had previously only used share buybacks to return capital to investors.
This follows a similar move by Meta Inc. earlier this year, in which the U.S. tech company will now offer investors a larger share of its vast cash reserves, rather than hoarding them for investments or acquisitions. He emphasizes that he is proactive.
This performance is a big boost for Pichai. Pichai has been criticized for being slower to commercialize generative AI than his competitors – particularly in the context of Microsoft’s $13 billion partnership with OpenAI and the much-touted ChatGPT – but the technology is in-house. (even though it was developed by the researchers).
It also helps Google recover from a setback in February when it suspended image generation on Gemini following an uproar over inaccurate historical depictions of various ethnicities and genders.
Google and Microsoft’s financials and AI investment plans were particularly closely watched given their rival Meta’s experience. Chief Executive Officer Mark Zuckerberg said Wednesday that he will spend billions more than planned on AI, adding that costs will increase significantly “before we can generate much revenue from some of these new products.” The social media group’s shares fell 11% after warning that it needed to do so.
Microsoft’s revenue for the quarter rose 17% to $61.9 billion, driven by cloud computing sales and strong demand for AI-related services on its Azure platform.
Revenue from Google’s cloud business rose 28% to $9.6 billion as companies seek access to vast computing power and chip infrastructure to train LLMs and ride the AI wave.
Alphabet’s capital spending increased to $12 billion, above expectations of $10 billion, and Chief Financial Officer Ruth Porat said the company would spend at least that amount every quarter for the remainder of the period.
This means spending will rise from $32.3 billion in 2023 to at least $48 billion this year, an increase of almost 50%.
Microsoft’s capital spending likewise increased to $14 billion in the quarter, up from $11.5 billion a year earlier.
Analysts said Alphabet’s operating profit margin was also on the rise, expanding to 32% from 25% a year earlier, beating expectations of 29%. Mr Porat said the move demonstrated “ongoing efforts to permanently redesign our cost base”.
“Perhaps the most important thing, relative to the big after-hours move in stock prices, was that the margins were significantly better than expected,” said Brad Erickson of RBC Capital Markets.
“It provides a very good data point regarding management’s commitment to realizing cost savings over the next few years,” Ericsson added.
Ad revenue from search and YouTube, which account for more than three-quarters of Google’s revenue, rose 13% to $61.7 billion, compared with analyst consensus estimates of $60.2 billion.
Google will reveal details of its plans for AI and search at its annual I/O developer conference on May 14th and 15th at its headquarters in Mountain View, California.
