AI powers growth across cloud and search for Alphabet as CEO Sundar Pichai insists it's still early days - Diginomica

Revenue at Google Cloud rose 82% to $24.8 billion during the quarter ended June, accelerating from the 63% jump reported in the preceding three months. Total revenue of $119.8 billion in the period, net income of $112.1 billion.

It’s all AI-driven, of course. Alphabet CEO Sundar Pichai commented:

Our continued momentum is driven by our integrated AI portfolio, consisting of chips, models, data, security and agent platforms, all designed to work together. Gemini continues to be a key driver of growth and is deeply integrated across all of our cloud products, including Gemini Enterprise, Data Analytics, Cybersecurity and Google Workspace. We are seeing strong diversified demand across products, customers, geographies and industries.

Our product differentiation is driving expansion in three ways. We are winning new customers, more than doubling our acquisition velocity year-over-year. We are deepening our relationships with existing customers who are expanding their usage and exceeding their commitments by more than 50%, also an acceleration over last quarter. We are driving growth with partners with transactions on Google Cloud Marketplace growing over 7x year-over-year.

Elsewhere Pichai highlighted Gemini Enterprise for particular attention:

One of the strongest parts of our growth comes from the rapid adoption of our Gemini Enterprise platform. It's differentiated with easy-to-use tools to build agents and automate processes, connectivity to enterprise systems, cost management and governance tools. In Q2, agent development kit, our framework for building and deploying enterprise AI agents reached nearly 70 million total downloads. As I said, nearly 90% of Fortune 100 are using Gemini Enterprise. We have customers like PepsiCo for AI and analytics solutions, Intel to streamline core processes, HSBC for wealth management, Bell Canada for customer engagement, Macy's for commerce experiences, and SIGNAL IDUNA for knowledge management.

More broadly, Gemini is transforming how millions of businesses use AI to build custom agents, automate processes, improve cybersecurity, manage customer relationships, streamline data analytics, collaborate effectively and more. All of this momentum is driving growth in our paid token usage. Nearly 500 cloud customers have each processed more than 1 trillion tokens in the last year and usage is so much deeper than that. Over the last 12 months, more than 2,000 enterprises consumed over 100 billion tokens. We are also seeing strong interest in our AI-powered security platform, which is differentiated because it integrates threat intelligence, cyber response prioritization with Wiz, AI-automated scanning, code remediation and monitoring.

Search

Gemini is also powering up growth in the search category, added Chief Business Officer Philipp Schindler:

We continue to accelerate the deployment of Gemini across our entire ads infrastructure to boost performance in 3 areas mentioned before: ads quality, advertiser tools and AI user experiences. First, ads quality. At Google Marketing Live, we showcased how Gemini improves query understanding, allowing us to find relevant ads for longer searches previously difficult to monetize. The core engine of our search ads relies on a dual prediction, delivering immediate utility for the user while maximizing measurable value for the advertiser.

Gemini completely super-charges this capability. We use Gemini's advanced reasoning to decode the nuances of longer, more detailed queries. With shopping ads, for instance, we drove a 20% improvement in showing highly relevant ads, helping shoppers immediately find the best match.

Advertiser tools, such as AI Max, are also adding to the mix, he added:

[AI Max] has become the core building block for advertisers to fully participate in our new AI experiences. It's out of beta and 0.5 million advertisers have already adopted it. Those who adopt our AI-powered campaigns like AI Max or PMax see an average of 15% more conversions or value on search at a similar ROAS. AAA Auto Club Enterprises used AI Max to personalize creative assets and capture growth from increasingly detailed insurance searches. This led to a 17% improvement in conversion volume and an 11% decrease in cost per lead. We see strong adoption of our generative AI creative tools, which makes creative development easier, especially for SMBs. In fact, over half of our SMB customers globally use AI to create or optimize their creatives.

All told, a strong quarter for Alphabet with AI powering growth all round. But it’s only the start, argued Pichai:

I do think it feels like we are in very early innings of what feels like a secular shift across multiple areas in our core information businesses just the possibilities when I see what all you can do with the absolute frontier capabilities, there's still a lot of work ahead to translate all that into experiences for our consumer users. You can think about end-to-end agentic experiences to really meaningfully do a lot more for them.

So all of that looks like extraordinary opportunities with extraordinary returns for executing well on those opportunities. Similarly, on the Enterprise side, as you can see from our demand, which is reflected in our growth rates, etc. Again, in my conversations with many CEOs, many companies, they're all still barely scratching the early stages of what's possible here.We used to talk about cloud itself. A very small percentage of overall workloads in enterprises have shifted to cloud. Now think about what percentage of workloads are really AI-native and AI-enabled. It again, feels like very, very early.

My take

The first of the big platform providers out of the gate with its latest quarterly progress. Next up, AWS.