The rise of Nvidia (NVDA) represented the first stage of the AI boom. Clouds bought chips with both hands to deliver AI tools to their customers. It’s still happening. Nvidia is now the world’s most valuable company.
This week’s Alphabet (GOOG)(GOOGL) earnings represent a second stage for the AI boom. It’s proof that companies are using these chips and paying for the privilege.
The numbers say that Google Cloud revenues rose 35%, year over year, and that earnings jumped about the same amount. This is more than double the growth rate of Google’s overall business, up just 15%.
In just three months Google brought in $88 billion and saw over $26 billion, almost 30%, translate into net income. Operating cash flow was almost the same as last year at $30.6 billion.
I was worried about Alphabet going into this print. I haven’t owned it for some time, and I guess I was wrong to bail. Shares jumped over 6% overnight but the price earnings multiple is still reasonable, given that 15% growth rate.
There remains one big concern, which the release skipped over. There was a line about AI features “expanding what people can search for and how they search for it.” That’s bullshit, since they’re narrowing the search field and no longer indexing the whole web. But more important, if Cloud revenues are up 35% and total revenues are up 15% what does that mean about search revenue? It was up 12% and is likely losing share. Search still represents over 55% of total revenue.
Be aware of that when the analysts give their happy talk about these numbers.
