Shares of Google LLC’s parent company Alphabet Inc. trading higher in the after-hours session today following a solid earnings beat driven by strong cloud revenue growth.

Alphabet’s stock was up more than 5% in extended trading, adding to a slight gain made during the regular trading session.

The company reported third-quarter earnings before certain costs such as stock compensation of $2.12 per share on revenue of $88.27 billion, up 15% from a year ago. The results were better than expected. Wall Street had been anticipating earnings of just $1.85 per share on lower sales of $86.3 billion.

Alphabet’s all-important Google Cloud unit delivered revenue of $11.35 billion, representing growth of 35% on the $8.41 billion in sales it reported one year earlier. The company said this growth was primarily driven by rapid update of its artificial intelligence services, which includes subscriptions to enterprise customers.

On a conference call with analysts, Alphabet Chief Executive Sundar Pichai (pictured) insisted that Google Cloud’s “full stack” of AI products and services is already up and running at scale, used by billions of people worldwide and “creating a virtuous cycle.”

With today’s report, Alphabet becomes the first of several “megacap” technology companies to report its latest earnings results, with Microsoft Corp. and Meta Platforms Inc. set to report Wednesday, and Amazon.com Inc. and Apple Inc. to follow on Thursday.

The company reported that its net income rose to $26.3 billion at the end of the quarter, up from $19.7 billion in the same period one year earlier.

Google Search delivered $49.4 billion in sales during the quarter, up 12.3% from a year earlier, and it remains the biggest single contributor in terms of revenue growth, said Alphabet Chief Financial Officer Anat Ashkenazi. She told investors that the company is planning to use AI to streamline workflows, manage its headcount and its physical footprint going forward, as it looks to build on its earlier cost-cutting efforts, which included thousands of layoffs last year and several hundred more earlier this year.

“I plan to build on these efforts but also evaluate where we might be able to accelerate work and where we might need to pivot to free up capital for more attractive opportunities,” Ashkenazi, who joined Alphabet in June after spending 23 years at the pharmaceutical giant Eli Lilly Co.

Alphabet’s advertising business also grew well in the quarter, with revenue of $65.85 billion, up from $59.65 billion in the year-ago quarter, though it grew at a slower pace on a sequential basis.

Within that segment, YouTube’s advertising revenue came to $8.92 billion, just ahead of the analyst’s target of $8.89 billion, with more rapid growth than in the previous quarter. That growth was encouraging as the Google-owned company has faced strong pressure from other advertising competitors such as Amazon, Netflix Inc. and TikTok’s parent company Bytedance Ltd.

Alphabet Chief Business Officer Philipp Schindler said one reason for the growth is that AI is helping to improve YouTube recommendations. It has been using the Gemini large language model family to help recommend “more relevant, fresher and personalized content” to viewers, he insisted.

Investing.com analyst Thomas Monteiro said Alphabet’s results can be taken as a bellwether of what’s to come from the other big tech stocks set to report earnings later this week, as he’s expecting a “very strong season” thanks to a “surprisingly resilient economy and growingly supportive monetary outlook.”

The analyst believes this is reflected in both Alphabet’s cloud and advertising businesses. “While some of these numbers certainly come from the positive seasonality, particularly with the U.S. election driving increasing interest in YouTube and search, the stock has been fairly underpriced amid a market that can’t seem to get enough tailwinds,” Monteiro said.

Another encouraging sign was the performance of Google Workspace, which is Alphabet’s productivity tool suite. Ashkenazi said it also showed “strong growth,” as did Google Cloud Platform, which is the company’s data management and AI development suite, with revenue growing faster than that of the overall cloud unit.

The Other Bets division, which includes Alphabet’s life sciences business Verily and the self-driving car division Waymo, delivered sales of $388 million during the quarter, up from $297 million in the same period one year ago.

Waymo last week closed on a bumper $5.6 billion funding round, and aims to expand its nascent robotaxi service beyond Los Angeles, Phoenix and San Francisco, where it currently operates.

Pichai also talked up Google Lens, an image recognition product that uses smartphone cameras to conduct visual searches. According to Pichai, usage of the service has grown to more than 20 billion visual searches per month, making it one of the company’s fastest-growing products. He said it’s most often used by people out shopping, to find more information about the products they’re looking at.

During the quarter, Alphabet’s executive team saw quite a shakeup. Along with Ashkenazi’s arrival, the company also replaced its longtime Search and Ads boss Prabhakar Raghavan with Nick Fox, who previously headed up the team leading the development of Google Assistant. In addition, Alphabet revealed that the team responsible for the Google Gemini app is joining Google DeepMind, where it will report to Demis Hassabis.

Jeffrey Wlodarczak, an analyst with Pivotal Research Group, hailed Alphabet’s strong beat across the board. “It reported stronger-than-expected revenue in all categories, including search, YouTube ads and Google Cloud, leading to 15%+ revenue growth,” he said.

In light of the results, Wlodarczak said Pivotal is raising its expectations for Alphabet in the fourth quarter and beyond, reiterating its “buy” rating on the stock, which still has “substantial upside from current levels.”

Photo: Google