Alphabet, the parent company of Google and YouTube, has experienced impressive growth in the past few months, driven by strong performances in digital advertising and its cloud business. On Tuesday, Alphabet announced its third consecutive quarter of beating expectations, boosting its earnings even further and pushing its stock up in after-hours trading. CEO Sundar Pichai credited this success to Alphabet’s commitment to AI, innovation, and continued investment in the future.

Surpassing Expectations

Analysts expected Alphabet to report a revenue increase of about 12% year-over-year, forecasting $86.23 billion in revenue. However, the company exceeded those estimates, reporting a 15% growth to reach $88.27 billion, along with earnings per share of $2.12—also above the expected $1.85. Advertising revenue grew by 10%, with YouTube playing a significant role in this surge. Not only did YouTube see higher ad revenue, but its subscriptions also exceeded expectations, contributing positively to the company’s bottom line.

On the cloud side, Alphabet saw substantial growth, with a 35% rise in cloud services revenue, largely due to increased demand for AI-enabled products. Pichai emphasized that Google’s advancements in AI technology are paying off, stating, “The momentum across the company is extraordinary.” He added that their AI tools are helping both consumers and partners, contributing to Alphabet’s success.

Riding the AI Wave

Google has long been a key player in AI development, even though some see it trailing slightly behind OpenAI, which collaborates closely with Microsoft. Despite this, Google’s focus on AI is strong, and it continues to invest heavily in AI research and development. Pichai responded to these perceptions of being “one step behind” by likening Google to a neural network that’s constantly learning and evolving. “We’re forming new synapses,” he said, referencing the brain-like nature of their AI research.

Alphabet’s investments in AI have paid off significantly, with the company’s stock price up 20% this year and more than doubling over the past five years. This AI push has become a key reason behind the company’s recent revenue gains and consistent growth in its stock value.

Soaring Expenses Alongside Growth

While Alphabet’s revenue growth is impressive, the company is also spending a lot to maintain its edge. In fact, Alphabet’s capital expenditures rose 62% year-over-year, amounting to $13 billion. This spending increase is expected to continue into the next quarter and potentially grow further in 2025 as the company continues to invest in AI and other future technologies.

Alphabet’s commitment to AI and cloud services has shown great results, but it does come with a high cost. The company aims to keep its position as one of the leaders in the tech industry, and to do so, it is ready to continue spending to stay competitive.

Legal Challenges Cast a Shadow

Despite its financial success, Alphabet is dealing with legal troubles, primarily antitrust cases. This earnings call was the first since Alphabet lost a significant antitrust case against the U.S. government. The U.S. Justice Department is considering ways to address the issue, including possibly breaking up Google’s Android division. Google was found to be operating as an illegal monopoly, and its contracts with other tech companies were ruled anti-competitive. The judge may nullify these agreements or separate some of Google’s subsidiaries.

Pichai commented on the ongoing legal proceedings, noting that the Justice Department’s suggestions might have unintended consequences. He highlighted the importance of a dynamic tech sector in the U.S., adding, “We plan to engage very vigorously” to address these concerns.

In addition to this, earlier in October, Google faced another antitrust ruling involving its Google Play Store, stemming from a case filed by Fortnite creator, Epic Games. A judge ruled that Google must allow Android apps from competing sources and permit the use of alternative in-app payment methods. This change is expected to shake up Google’s control over the Android ecosystem.

Another antitrust trial, focused on Google’s advertising business, began in September and is still ongoing. The Justice Department claims that Google has built an illegal monopoly over online advertising, raising further questions about the company’s practices.

Waymo’s Expansion Drive

Alphabet’s self-driving car division, Waymo, is another exciting development, with the potential for future growth. Waymo has launched autonomous vehicle fleets in several U.S. cities and is now offering paid rides. Pichai noted that Waymo currently provides around 150,000 rides per day. On the same day as Alphabet’s earnings report, Waymo announced that it had raised $5.6 billion in funding from both Alphabet and external investors.

While Waymo’s financial contributions to Alphabet are still small compared to its advertising and cloud revenue, it represents an area of significant potential. Pichai explained that the speed at which Waymo can expand operations into new cities is improving, hinting at an optimistic future for the self-driving car business.