Shares in Google-parent Alphabet popped on Wednesday as Wall Street cheered a second-quarter earnings beat and management's outlook amid rising investments in artificial intelligence. Revenue for GOOGL stock also topped expectations, boosted by cloud computing and YouTube.
Reported after the market close on Tuesday, Google earnings came in at $1.44 a share, up 19% from the year-earlier period. The tech giant reports earnings under generally accepted accounting principles, also known as GAAP. A year earlier, Google reported earnings of $1.22 a share.
"Search revenue was better than feared and accelerated vs. Q1," Goldman Sachs analyst Eric Sheridan said in a note to clients. "End demand trends remained stable in terms of advertiser budget and product iteration."
GOOGL stock popped 5.8% to close at 129.27 on the stock market today, moving into a buy zone. Shares held a 127.10 buy point from a cup-with-handle base.
While 2023 earnings estimates may move slightly lower, analysts expect AI investments to spur advertising and cloud revenue growth. Capital spending in the second quarter rose to $6.9 billion, up from $6.3 billion in the first quarter. Meanwhile, cost cutting has improved profit margins.
"On the operating margin side, this was the 1st quarter of year-over-year expansion since Q4, 2021, thanks to cost discipline," Evercore ISI analyst Mark Mahaney said in his note to clients.
GOOGL Stock: Operating Expenses Fall
"Management on the call noted the ongoing focus on slowing organic hiring while simultaneously shifting expense growth toward key priorities like AI," TD Cowen analyst John Blackledge said in a note. "Q2 total operating expenses rose 5% year-over-year vs 18.1% in Q2, 2022."
He added: "Google also reiterated expected higher capital spending in 2023 amid tech infrastructure spending to support AI, offset by lower spend on office facilities."
In addition, the company said Chief Financial Officer Ruth Porat will assume the newly created role of President and Chief Investment Officer effective Sept. 1. Porat will continue to serve as CFO through the 2024 capital planning process as the company finds a successor.
The company said gross revenue rose 7% to $74.60 billion, compared with $69.7 billion a year ago. Analysts had predicted Google earnings of $1.34 per share on revenue of $72.84 billion.
Also, advertising revenue rose 3% to $58.14 billion vs. estimates of $57.39 billion.
"We believe Q2 demonstrated Google's AI prowess in ads and Cloud," Jefferies analyst Brent Thill said in a note. "We see the second half of 2023 continuing to accelerate from a Q4 (2022) bottom."
GOOGL Stock: YouTube Tops Estimates
Meanwhile, YouTube ad revenue rose 4% to $7.66 billion during the second quarter. Analysts had estimated YouTube ad revenue of $7.42 billion. TikTok's growth has pressured YouTube.
Google said cloud computing revenue rose 28% to $8.03 billion vs. estimates of $7.87 billion. Further, Google repurchased $14.97 billion of its own stock during the quarter.
With 19% earnings growth during the second quarter, Google stock ended a four-quarter string of year-over-year declines.
The Big Tech stock had advanced 37% in 2023. Also, GOOGL stock holds a Relative Strength Rating of 81 out of a best-possible 99, according to IBD Stock Checkup.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
