Google expects its operating margin to be higher than last year in the fiscal year 2024, but it may lag behind in the third quarter due to depreciation and high expenses.
After the post-market trading on Tuesday, the stock performed better than expected, with strong performances in cloud computing services and search businesses. With AI assistance, Q2 cloud revenue exceeded 10 billion US dollars for the first time. $Alphabet-A (GOOGL.US)$After the earnings call, Google's stock price dropped more than 2% in post-market trading on the US stock market.
Subsequently, Google held a financial conference call, and company executives updated investors on the latest developments in company investments in AI, future prospects, and other aspects. The following are the highlights of the call:
1. The risk of "underinvestment" in AI is far greater than the risk of "overinvestment".
During the call, Google CEO Sundar Pichai emphasized that for Alphabet, the risk of underinvestment in AI is far greater than the risk of overinvestment.
He pointed out that even if there is overinvestment, the investment currently used for infrastructure such as data centers can also be used for other tasks, and not maintaining a leading position in the AI competition will have a more serious negative impact on the company.
2. AI-driven search improvements increase search usage and user satisfaction.
Google stated that its AI overview tool has achieved positive results. The tool summarizes content at the top of the search page, which has improved search usage and user satisfaction, especially attracting more young users. Pichai said that AI has not only expanded the types of queries that Google can handle, but also opened up powerful new ways for search.
3. AI products help to increase cloud business growth.
Generative AI products have added new growth drivers to Google's cloud business. Ruth Porat, Google's CFO, said that most of Google Cloud's top 100 customers are using Alphabet's generative AI solutions. The profit margin of Google Cloud business has improved in the second quarter, reflecting the income strength of the department and the company's efficiency improvement.
4. The operating margin in fiscal year 2024 will be higher than last year, but the third quarter may lag behind.
CFO Ruth Porat said that the company is expected to have a higher operating margin in fiscal year 2024 than in 2023, but the third quarter may be negatively affected by depreciation and higher expenses, partly due to increased AI investment. In addition, the release of the new generation of Pixel phones will also push up expenses.
Porat also revealed that capital expenditures in the second quarter reached $13 billion, and it is expected that the remaining quarters in 2024 will maintain spending at around $12 billion per quarter.
After the earnings call, Google's stock price dropped more than 2% in post-market trading on the US stock market.
Editor/Somer