Google owner Alphabet's Cloud revenue miss sends stock tumbling

Google parent Alphabet Inc (NASDAQ:GOOG) saw its shares slide overnight as investors took fright at slower-than-forecast growth in its cloud arm.

Revenue and earnings beat forecasts but the Cloud sales miss saw Alphabet’s shares tumble 6% to about US$130 after Tuesday’s closing bell.

Early predictions were for the shares to recover some of those losses today given the strength of the numbers overall, but analysts said it was a warning that not even giants such as Alphabet can sit still with the advent of artificial intelligence (AI).

Google has been playing catch-up since Microsoft took pole position in AI through its backing of ChatGPT developer OpenAI.

Google has responded with Bard, its own version of generative AI, and a range of other me-too products.

“We’re continuing to focus on making AI more helpful for everyone; there’s exciting progress and lots more to come,” chief executive Sundar Pichai said in a statement.

For the quarter ended September 30, Alphabet’s revenue was $76.7 billion, up 11% from the year-ago quarter’s $69.1 billion.

Google Search and other revenue rose from $39.5 billion to $44 billion, YouTube ads revenue increased from $7.1 billion to $8 billion, and Google Cloud revenue climbed from $6.9 billion to $8.4 billion but missed the Street estimate of $8.6 billion.

Diluted earnings per share of $1.55 were up from $1.06 for the prior-year quarter and ahead of Wall Street analysts' consensus estimate of $1.45.

“I’m pleased with our financial results and our product momentum this quarter, with AI-driven innovations across Search, YouTube, Cloud, our Pixel devices and more,” Pichai added. 

Investing.com senior analyst Jesse Cohen said the relatively weak performance of Alphabet’s cloud platform shows it is at risk of falling further behind Azure and Amazon Web Services (AWS).

“Alphabet’s results prove it is not immune to the challenges facing the tech industry at large as it struggles in the face of ongoing macroeconomic headwinds, such as elevated costs and worries about a possible recession,” Cohen said. 

Contact the author at emily.jarvie@proactiveinvestors.com

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