Google parent Alphabet (GOOG, GOOGL) reported third quarter revenue and earnings on Wednesday that surpassed Wall Street’s expectations following a slew of AI deals involving its cloud segment.
The stock jumped more than 5% Thursday morning following the results.
Alphabet reported quarterly revenue of $102.4 billion for the three months ended Sept. 30, ahead of the $99.85 billion expected by Wall Street analysts tracked by Bloomberg and up from $88.3 billion in the same period last year.
The sales growth was driven by Google Cloud, which saw revenue rise 34% to $15.2 billion from $11.4 billion in the year-ago period and was higher than the $14.8 billion projected by analysts. The segment’s backlog, or value of future revenue from customer contracts, rose to $155 billion during the third quarter.
Executives said on the company’s post-earnings conference call that Google Cloud’s growth was driven by enterprise demand for AI. They said AI generated “billions of dollars” in revenue for the segment during the quarter.
“We have signed more deals over $1 billion through Q3 this year than we did in the previous two years combined,” Alphabet CEO Sundar Pichai said of the cloud segment during a call with investors Wednesday afternoon.
Meanwhile, the tech giant’s adjusted earnings per share of $2.87 for the third quarter were also more than the $2.27 projected and above the company’s $2.12 adjusted EPS in the year-ago period.
Alphabet also upped its capital expenditures forecast for the year to $92 billion at the midpoint from its previous estimate of $85 billion. Alphabet CFO Anat Ashkenazi said the higher expenditures are for AI infrastructure and emphasized that customer demand for the tech exceeds supply.
Read more: Live coverage of corporate earnings
The tech giant has increasingly shown that it’s a beneficiary of the AI boom, as its Gemini AI models have gained popularity and big-name AI developers have signed up to use its cloud services.
OpenAI added Google to its list of cloud infrastructure providers in July. Meta (META) reportedly signed a $10 billion deal with Google Cloud to use its services as the Facebook parent rushes to secure AI computing capacity, multiple media outlets reported in late August. Shortly after Alphabet’s third quarter ended, OpenAI rival Anthropic announced an agreement with Google Cloud to use up to 1 million of its custom AI chips called TPUs — a deal that could generate as much as $10 billion in annual revenue for Alphabet, according to Bank of America estimates.
At the same time, AI chatbots led by OpenAI’s (OPAI.PVT) ChatGPT pose risks to its core Search business. OpenAI’s release of its ChatGPT Atlas Web browser last week pushed the AI developer into even closer competition with Google, briefly sending Alphabet stock tumbling.
“Whether Google can maintain its dominant position in search is a meaningful structural uncertainty,” Loop Capital analyst Rob Sanderson wrote in an Oct. 23 note to investors.
Google’s Search business saw revenue of $56.6 billion during the September quarter, higher than the $55 billion forecast, per Bloomberg data.
Alphabet executives said Wednesday that AI is increasing the number of queries on Google Search and driving growth in the business.
“This is an expansionary moment,” Pichai said.
Correction: A previous version of this article misrepresented Alphabet’s Google Cloud revenue and the company’s pace of earnings growth. We regret the errors.
Laura Bratton is a reporter for Yahoo Finance. Follow her on Bluesky @laurabratton.bsky.social. Email her at laura.bratton@yahooinc.com.
Click here for the latest technology news that will impact the stock market
Read the latest financial and business news from Yahoo Finance