Wall Street was disappointed by Alphabet’s new tab on Tuesday as the company’s holiday season advertising sales fell short of forecasts, overshadowing its cloud and artificial intelligence initiatives.
In trading after hours, shares dropped by more than 4%. According to LSEG statistics, Alphabet’s fourth-quarter revenue of $65.5 billion fell short of analysts’ average estimate of $66.1 billion, indicating a shortfall in ad income. A year prior, it had reported $59.0 billion.
Alphabet has faced tough competition for ad budgets from other online platforms such as Facebook, Instagram, TikTok and Amazon.com, alongside mixed economic signals in the U.S.
“Alphabet’s disappointing ad revenue numbers suggest that corporations worldwide are still uncertain about the pace of interest rate cuts from global central banks,” commented Thomas Monteiro, senior analyst at Investing.com.
Google, the creator of the technology that laid the groundwork for the current AI boom, is up against fierce competition from OpenAI, the company that created ChatGPT, and Microsoft, which provides funding for the initiative.
Thanks to interest in artificial intelligence, Google’s cloud revenue growth marginally exceeded Wall Street projections, but Microsoft’s Azure increased more quickly.
Google is giving its ChatGPT competitor Bard access to a potent model suite dubbed Gemini. It signed an agreement to spend up to $2 billion in the well-known AI firm Anthropic as it entices users away from more established cloud competitors like Microsoft and Amazon, launches a new tab, and gives advertisers access to Gemini to ensure that their money stays in Google’s search division.
However, the boost AI will bring to advertising may still be a long way off, as there are worries that economic and geopolitical unpredictability may deter ad purchasers.
Alphabet’s AI initiatives are being investigated by the US, Google is preparing to file an appeal in a significant antitrust case it lost, and the business has been reducing employment, much like other tech companies.
LSEG data shows that overall revenue for the quarter ending December 31 was $86.3 billion, versus projections of $85.3 billion.
The success of Google Cloud has attracted the attention of investors. The segment turned a profit for the first time in a quarter last year, but as clients reduced their cloud expenditure, sales growth slowed.
Microsoft has been a fierce competitor, adding AI to its cloud and productivity suite long embraced by enterprises, while Google has marketed rival tools. OpenAI’s Nov. 2022 launch of ChatGPT ignited a frenzy over generative AI, which can conjure new text and images on command.
Alphabet said Google Cloud revenue in the latest quarter was $9.2 billion, while analysts were expecting $8.9 billion. That marked a re-acceleration of cloud revenue growth from the previous quarter to 25.7% but was slower than 32% growth in the year-ago quarter. Microsoft on Tuesday reported that sales of its cloud product, Azure, grew at 30%.
Alphabet CEO Sundar Pichai told analysts that cloud growth was driven in part by generative artificial intelligence.