NEW YORK: Google parent Alphabet Inc has reported second-quarter revenue that exceeded analysts’ expectations, boosted by demand for cloud-computing services and advertising on its search engine.Sales, excluding partner payouts, were US$71.36bil in the second quarter, the company said in a statement.

Analysts had projected US$70.7bil, according to data compiled by Bloomberg. Net income was US$1.89 per share, compared with Wall Street’s US$1.84 estimate.

Google once had a head start in the artificial intelligence (AI) race because it developed much of the technology underpinning popular chatbots.

Now, the company is under pressure to prove that it can withstand competition from the likes of OpenAI and Microsoft Corp as they try to draw people away from traditional web search, pushing chatbots that can answer users’ questions in a conversational fashion.

Google has rushed to weave AI into all of its widely-used products, including Gmail, Google Docs and search, while boosting its own AI capabilities, an expensive initiative with mixed results.

The tech giant is also providing cloud computing services to fast-growing startups, fuelling consistent profitability for that business after years of losing money.

Still, some investors are looking for clearer evidence of return on investment for all the billions in spending on AI progress, said Daniel Morgan, senior portfolio manager at Synovus Trust.

“How much revenue are you getting from that?” he asked. “When I look at this report what I see is Google as it’s always been. They generate money from advertising and search.”

Alphabet’s capital expenditures in the second quarter were higher than analysts had expected, in support of AI and computing power. The company spent US$13.2bil, compared with estimates of US$12.2bil.

Google Cloud brought in profit of US$1.17bil, beating analysts’ estimates for operating income of US$982mil.

Google still trails Amazon.com Inc and Microsoft in the cloud computing market, but in the past year, the unit has attracted business from AI startups.

Investors are also eyeing Google Cloud as the unit with the most potential to boost growth at Alphabet overall, especially as its search business matures.

“We’ve certainly seen the benefit of our strength in AI, AI infrastructure, as well as generative AI solutions for cloud customers,” Alphabet chief investment officer Ruth Porat said on a call with media.

“There is no question customers are turning to us as they are building out their capabilities.”

In May, Google announced AI Overviews for search written by generative AI technology, but the launch of the feature didn’t go well.

Some AI Overviews offered embarrassing suggestions, advising people to eat rocks or to put glue on pizza, for example.

Still, the firm’s quarterly search advertising revenue was US$48.5bil, compared with the average analyst projection for US$47.6bil.

“If it takes more effort for consumers to go anywhere else to search,” said Evelyn Mitchell-Wolf, an analyst with EMarketer, “Google is going to keep monetising search traffic higher than any of its competitors.”

YouTube reported US$8.66bil in revenue, compared with analysts’ average estimate of US$8.95bil.

Of Alphabet’s various businesses, YouTube has been the most vulnerable to swings in the digital-ad market.

Alphabet’s Other Bets - a collection of moonshot units that includes the life sciences business Verily and the self-driving car effort Waymo - brought in US$365mil in revenue while posting an operating loss of US$1.13bil.

That was steeper than analysts’ projection for a loss of US$1.07bil.

Alphabet has recently put pressure on its bets to spin off as independent startups, rather than becoming business units of their parent company.

 - Bloomberg