Alphabet (GOOG, GOOGL) exceeded Wall Street expectations in its third quarter results, revealing exceptional growth in its cloud business segment.
The tech giant reported adjusted earnings of $2.12 per share, above the $1.84 analysts expected. Revenue reached $88.27 billion, topping the estimated $86.45 billion. Google Cloud performance was particularly strong, with revenue of $11.35 billion outpacing estimates of $10.79 billion.
“They’re executing extremely well on the cloud side of things,” CFRA Research Senior Equity Analyst Angelo Zino tells Market Domination Overtime. He highlights that the cloud division achieved its highest-ever operating margin at 17% this quarter.
Zino identified AI evolution in search as the primary challenge facing Alphabet, noting it’s been a key reason investors have been “hesitant on the Alphabet story.” However, he remains optimistic about the company’s trajectory. Although this will be “a trying time” for the company, Zino said he is “encouraged with how they’re adapting to things here,” pointing to their innovation efforts.
He concludes that the company is “well positioned” against competitors in the long-term search market.
These are the remaining Magnificent Seven tech stocks scheduled to report earnings this season:
Meta Platforms (META) and Microsoft (MSFT) — Wednesday, October 30
Nvidia (NVDA) — Wednesday, November 20
To watch more expert insights and analysis on the latest market action, check out more Market Domination Overtime here.
This post was written by Angel Smith
All right.
Well, let’s talk more about all of this CFR, a research senior equity analyst, Angelo, you know, is standing by to join us with more on alphabets third quarter.
So first of all, just give us your big picture top line reaction here, Angelo.
Yep.
So thanks for having me, I guess, you know, overall, I mean, you, you guys kind of, you know, did a good synopsis of it, but overall the numbers were good revenue, I I believe drew 15% earnings um was $2.12 that would kind of, you know, beat the expectations out there.
I think revenue uh street was looking at for about 12% growth eps of about a dollar 85.
They don’t provide kind of guidance in the press release.
So we kind of wait for some qualitative data, uh you know, on the uh the call out there.
But overall, you know, initial reaction is, is good results, I think kind of um you pointed towards the, the Google s uh cloud side of things and that’s really kind of where there, there was a, a really nice, you know, beat from, you know, where our expectations were and I think even kind of when you look, um, on the Google cloud side of things, in terms of the margins, their operating margin was about 17% or so is what I have.
And, um, that is by far the highest uh operating margin that they’ve ever posted on the cloud side of things, the prior quarter was 11% the prior quarter before that was about 9%.
So they’re executing extremely well on the cloud side of things.
Um in terms of the operating margin and, and the, you know, overall margins kind of held up where we expected, I would say, kind of, I know you kind of alluded to the kind of the, the expense side of things.
You know, if you kind of look, uh you know, based on what they spent at least this quarter in terms of uh you know, equipment, it was about $13 billion kind of our expectation was, you know, they need to keep it in that 12 to twe uh 12 to $13 billion quarterly run rate, which is kind of what the, the co uh the company had been alluded to it to here over the last couple of quarters and kind of going through the rest of this year.
That’s what they kind of kept it at.
So that’s definitely a good sign out out there in terms of kind of the spending levels that we saw here this quarter.
Which is probably helping another stock kind of, you know, move higher here.
What about the, the A I evolution and search Angelo?
How do you think about that?
What that means for this name?
You know, not just near term, but as you try to map out what it could also mean long term.
Yeah, I mean, listen, that is the biggest question out there for alphabet and, and I think, you know, it’s, it’s why uh a number of indi individuals out there have kind of been hesitant on the alphabet story here.
And you know, the way I look at it is, you know, we’re believers of alphabet and kind of how they’ve evolved their business over the years and over the last two decades and, and this is definitely gonna be a trying time for them and they’re gonna have to figure it out and kind of uh really innovate quickly.
But what we’ve seen thus far in terms of how they’re innovating on the A I overview side of things.
So we definitely wanna hear kind of what they’re seeing in terms of the monetization side of things.
Um As far as that is concerned on the call, we expect them to fully talk about that.
But thus far, I mean, I, I’d say we’re, we’re pretty encouraged with how they’re kind of um adapting to things here.
Clearly, the competitive uh pressures are going to intensify here over the next couple of years.
Um not only from, you know, the Microsoft’s open a is of the world but, you know, kind of saw some news on, on meta as well.
There are gonna be different ways people are gonna search uh here over the next couple of years.
But that said, um, you know, we, we think Google is gonna be, uh they’re gonna be able to figure this out and we think they’re well positioned.