Alphabet's Q3 Growth Driven By AI-Powered Cloud, YouTube Ad Growth

Alphabet reported impressive third-quarter results, propelled by growing cloud revenue and strong ad sales on YouTube, aided in part by US election spending. The Google parent company saw its cloud business expand by 35 per cent to USD 11.35 billion, as enterprise clients increasingly invested in cloud solutions to support AI-driven technologies. 

The growth, Alphabet’s fastest in eight quarters, reinforced the company's recent AI investments, which executives stated are beginning to “pay off.” Alphabet’s AI-powered offerings have been in the spotlight this year, with advancements in its Gemini chatbot and AI-powered Search as the company works to enhance the user experience and match the innovation of rivals like Microsoft.

The company surpassed Wall Street’s expectations across the board, delivering earnings of USD 2.12 per share compared to an anticipated USD 1.85. Revenue for the quarter increased by 15 per cent to USD 88.27 billion, outpacing analyst estimates of USD 86.30 billion, thanks to gains in Search and YouTube ads, which benefited from election-related ad spend. 

Alphabet also pulled forward its smartphone launch this year, which contributed to the revenue boost. On a post-earnings call, Alphabet's Chief Business Officer, Philipp Schindler, credited election spending as a tailwind for YouTube, while overall ad revenue climbed 10 per cent to USD 65.85 billion, still showing a slight slowdown in growth compared to the previous quarter.

CEO Sundar Pichai and new CFO Anat Ashkenazi spoke on Alphabet's commitment to AI development, with capital expenditures in the quarter up 62 per cent to USD 13 billion. Ashkenazi noted that spending would remain elevated in 2025 to support further growth in AI and cloud services. Despite Alphabet’s gains, competition in the digital ad space is intensifying, with companies like Amazon and TikTok drawing advertisers and gradually eroding Google’s share of the market. 

According to eMarketer, Google’s US search advertising market share is projected to fall below 50 per cent next year for the first time in nearly two decades, while Amazon’s share is expected to increase to 24 per cent as it becomes an increasingly popular choice for advertisers.

Alphabet’s strong quarter, however, signals the company’s strategic pivot to cloud and AI as essential revenue streams for the future. As the first major tech firm to report third-quarter earnings, Alphabet’s results sparked optimism among investors, driving its shares up nearly 6 per cent in after-hours trading.