Google Cloud Hits $8.4B In Sales As CEO Pichai Touts AI

‘As we expand access to our new AI services, we continue to make meaningful investments in support of our AI efforts. We remain committed to durably re-engineering our cost base in order to help create capacity for these investments in support of long term sustainable financial value,’ says Alphabet CEO Sundar Pichai.

Google parent company Alphabet, which is celebrating the 25th anniversary of the founding of Google, Tuesday reported solid momentum in its cloud business with $8.4 billion in quarterly sales.

Product momentum was shown with AI across all of Alphabet as seen in the recent Google Cloud Next, Made On YouTube, and Made By Google events, said Alphabet CEO Sundar Pichai.

“It’s all part of our focus on making AI more helpful for everyone,” Pichai told financial analysts and other Alphabet watchers on the company’s second fiscal quarter 2023 financial analyst conference call.

[Related: Google CEO Sundar Pichai: 5 Boldest AI Remarks From Google Cloud Next Keynote]

AI and generative AI are making their presence felt across a wide range of Alphabet’s technologies, said Pichai during his prepared remarks on the call.

First, he said, AI is improving knowledge and learning, including Alphabet’s work with its Search Generative Experience, which he described as an experiment to bring generative AI capabilities into search.

“We’ve learned a lot from people trying it, and we have added new capabilities like incorporating videos and images into responses and generating imagery,” he said. “We’ve also made it easier to understand and debug generative code. Direct user feedback has been positive, with strong growth and adoption.”

Alphabet is prioritizing approaches that add value for users, send valuable traffic to publishers, and support a healthy open Internet, Pichai said.

“With generative AI applied to search, we can serve a wider range of information needs and answer new types of questions, including those that benefit from multiple perspectives,” he said. “We are surfacing more links with SGE and linking to a wider range of sources on the results page, creating new opportunities for content to be discovered.“

Alphabet’s second focus area is on boosting creativity and productivity, where Google Bard has proved particularly helpful, Pichai said.

“Bard can now integrate with Google apps and services showing relevant information from Workspace Maps, YouTube, and Google flights and hotels,” he said. “Earlier this month, we announced Assistant with Bard, a personal assistant powered by generative AI. It combines Bard’s generative and reasoning capabilities with Assistant’s personalized help. You can interact with it through text, voice, or images. And in the coming months, you will be able to opt in on Android and iOS mobile devices.”

Google’s third major focus is enabling developers, businesses, and other organizations to build their own transformative products and services, Pichai said. He said that thousands of customers and partners are already using Google Cloud to capture the potential of AI.

The fourth, Pichai said, is building and deploying AI responsibly so everyone can benefit from it.

“One area we are focused on is making sure people can more easily identify when they are encountering AI-generated content online,” he said. “Using new technology powered by Google DeepMind SynthID, images generated by Vertex AI can be watermarked in a way that is invisible to the human eye without reducing the image quality. Underlying all this work is the foundational research done by our teams at Google DeepMind and Google Research.”

AI will continue to be a long-term investment focus for Alphabet, Pichai said.

“As we expand access to our new AI services, we continue to make meaningful investments in support of our AI efforts,” he said. “We remain committed to durably re-engineering our cost base in order to help create capacity for these investments in support of long term sustainable financial value. Across Alphabet, teams are looking at ways to operate as effectively as possible focused on their biggest priorities.”

On the Google Cloud side, over 60 percent of the world’s 1,000 largest companies are customers, Pichai said.

“At Cloud Next, we showcased amazing innovations across our entire portfolio of infrastructure, data and AI, workspace collaboration, and cybersecurity solutions,” he said. “We offer advanced AI-optimized infrastructure to train and sell models at scale. And today, more than half of all funded generative AI startups are Google Cloud customers.”

Alphabet continues to provide a wide range of accelerator options, including its new A3 VMs powered by Nvidia’s H100 GPUs, Pichai said. The company is also winning customers with Cloud TPU v53 ASICs for accelerating machine learning workloads, he said.

Between the second and third quarters, the number of active generative AI projects on Alphabet’s Vertex AI training, testing, and development platform grew by 700 percent, Pichai said.

He also cited the power of Google’s Duet AI AI-powered collaboration platform that was created using Google’s leading large foundation models and trained to help users be more productive on Google Cloud.

“We continue expanding its capabilities and integrating it across a wide range of cloud products and services. … Companies are increasingly using AI for the purpose of analyzing data,” he said. “And customers are choosing Google Cloud because we are the only large cloud provider with a unified platform to analyze structured and unstructured data.”

Some of those startups include Tel Aviv, Israel AI21 Labs; Palo Alto, Calif.-based Contextual AI; New York-based Elemental Cognition; and San Francisco-based Writer, he said. Alphabet has also invested $300 million in Anthropic, an AI startup founded by former employees at rival OpenAI.

Alphabet has also integrated Duet AI across its cybersecurity portfolio to provide generative AI-powered assistance in Mandiant Threat Intelligence, Chronicle Security Operations, and Security Command Center, Pichai said.

“This reduces the time security teams spend writing, running, and refining searches by seven times,” he said. “We are the only leading security provider that combines frontline intelligence and expertise, a modern security operations platform, and a trusted cloud foundation, all infused with generative AI.”

For its third fiscal quarter 2023, which ended September 30, Alphabet reported total revenue of $76.69 billion, up 11 percent over the $69.09 billion the company reported for its third fiscal quarter 2022.

This included Google Cloud revenue of $8.41 billion, up 22 percent over the $6.87 billion the company reported for the year-ago quarter. Alphabet stock sank 6 percent in after-hours trading Tuesday as cloud revenue came in slightly below Wall Street expectations.

Google Cloud reported operating income of $266 million, up significantly from the $440 million loss the business reported last year.

The Google Cloud business includes infrastructure and platform services, collaboration tools, and other services for enterprise customers. The organization generates revenue from fees received for Google Cloud Platform services, Google Workspace communication and collaboration tools, and other enterprise services, the company said.

U.S. revenue for the quarter was $36.35 billion, up from $33.37 billion.

Total revenue beat analyst expectations by $980 million, according to seeking Alpha. However, Google Cloud revenue missed analyst expectations, the only segment that missed, Seeking Alpha said.

Alphabet also reported GAAP net income for the quarter of $19.69 billion or $1.55 per share, up from $13.91 billion or $1.06 per share. That beat analyst expectations by 10 cents per share, Seeking Alpha reported.