Google's Cloud Sales Disappoint.

"Google reported its strongest business growth in more than a year but disappointed investors with relatively weak cloud computing sales, delivering a mixed picture as it continues to wrestle with competitors developing artificial-intelligence tools.

Google's parent company Alphabet reported third-quarter revenue of $77 billion Tuesday, up 11% from the same period last year. The results marked the third consecutive quarter of accelerating growth for the search giant following an economic slowdown that briefly caused a rare drop in the company's advertising sales.

Sales growth in Google's cloud division, which oversees the servers powering the company's AI programs, slowed to 22% from the third quarter last year, coming in below Wall Street's expectations. The business brought in $8.4 billion of revenue and reported its third straight quarter of operating profit, making $266 million by that metric.

Shares in Alphabet dropped more than 5% in after-hours trading. The stock has risen about 54% this year in regular trading while the broader tech-heavy Nasdaq Composite Index has gained about 24%.

"Cloud computing is a much lumpier business than advertising, and one where Google is facing stiff competition," said Max Willens, senior analyst at Insider Intelligence. "While the traction it has among AI startups may bear fruit in the long run, it is not currently helping Google Cloud enough to satisfy investors."

The advertising recovery is providing a boost to Google and other big tech companies such as Facebook owner Meta Platforms as they push forward with plans to develop costly artificial-intelligence services, attempting to replicate the success of the ChatGPT bot released last year by OpenAI.

"We'll do everything that is needed to make sure we have the leading AI models and infrastructure in the world, bar none, and will continue driving efficiencies from there," Alphabet CEO Sundar Pichai said on a call with analysts.

Alphabet reported lower than expected third-quarter operating income of $21 billion, and executives indicated they would spend heavily on the technology required to develop AI programs.

"We continue to invest aggressively, given the significant potential we see, while remaining focused on profitable growth," said Ruth Porat, the finance chief, speaking about the cloud business.

Alphabet appointed Porat to president and chief investment officer beginning last month. She is also serving as CFO until the company appoints a successor.

Google has released a flurry of AI-infused products, including the chatbot Bard, its answer to ChatGPT. It has also started introducing conversational AI features in its search engine, raising fears that a broader rollout could damp the service's significant profit margins.

An antitrust trial in Washington, D.C., focusing on Google's search engine has added to the pressure on the company. Google plans to begin its defense this week.

Google's advertising revenue increased 9.5% from the third quarter last year to $60 billion during the most recent period, largely driven by an uptick in ads placed next to search results." [1]

1. Google's Cloud Sales Disappoint. Kruppa, Miles.  Wall Street Journal, Eastern edition; New York, N.Y.. 25 Oct 2023: B.1.