Cloud Stocks: Google Focuses On AI Enhancements

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Google (Nasdaq: GOOG) reported its fourth-quarter results earlier this week that continued to outpace market expectations. While it saw significant growth across most of its segments, its Cloud growth was impressive. The company is investing in AI capabilities and released several new products during the quarter.

Alphabet’s Financials

Alphabet’s fourth-quarter net revenues grew 37.6% over the year to $75.33 billion, ahead of the market’s forecast of $72.17 billion. Net income rose a spectacular 169.1% over the year to $30.69 per share, again surpassing the market’s forecast of $27.34 for the quarter.

By segment, revenues from Google Services that includes Search, advertising, Android, Chrome, hardware, Google Maps, Google Play, and YouTube grew from $31.9 billion a year ago to $43.3 billion. Google Cloud revenues grew 44.64% to $5.54 billion. Revenues from other bets fell from $196 million to $181 million.

Operating income from Google Services grew from $19.07 billion last year to $25.99 billion in the quarter. Google Cloud and its Other Bets are loss-making divisions. Cloud ended the quarter with a loss of $890 million and Other Bets reported a loss of $1.24 billion.

This was an impressive quarter, and year for Google Cloud. During the quarter, Google Cloud’s revenue rose 45% to $5.5 billion. GCP recorded more than 80% growth in total deal volume in fiscal 2021 compared to the prior year and more than 65% growth in the number of deals with values of over $1 billion. Its annualized revenue run rate grew from $20 billion a quarter to $22.16 billion.

Google ended the year with revenues of $257.6 billion compared with $182.6 billion reported a year ago. EPS grew from $58.61 a year ago to $112.20 for fiscal 2021.

Google did not provide an outlook for the current quarter. The market is looking for an EPS of $25 on revenues of $54.99 billion for the first quarter and EPS of $113.10 on revenues of $244.21 billion for the current fiscal year.

Alphabet’s Product Enhancements

Alphabet continued to release AI-focused product upgrades during the quarter. Its new AI models are helping create information experiences that are conversational, multimodal, and personal. For instance, Multitask Unified Model (MUM) is helping deliver improved searches for vaccine information. It is now working on introducing new ways to search with images and words simultaneously. It also announced the launch of Pathways, its new AI architecture. Unlike typical AI models which are trained for a single activity, Pathways can be trained to do millions of things. Google is now helping use its AI prowess to move beyond search into other business use cases as well.

It is also integrating AI into its hardware with Pixel. Recently, it announced the use of AI on Pixel that will allow users to access live translate. The capability will detect when a chat message is in a different language, and then automatically translate it into up to 48 other languages.

It recently released an AI-based advertising campaign called Performance Max that integrates Google Ads, AI, and automation to let brands promote their business across all Google interfaces from a single campaign. It evolved its insights tools by launching several new ML-based features such as Demand Forecasts to help businesses predict forward-looking trends and better manage their inventory.

In the fourth quarter, YouTube’s advertising revenues were $8.63 billion, falling short of the market’s expected $8.87 billion. It was the only metric that fell short of market expectations. But Google continues to expand YouTube’s capabilities as it counters the growth of TikTok. YouTube Shorts is seeing significant engagement and it recently hit five trillion all-time views, with over fifteen billion views each day globally. The growth in YouTube is helping its creator community. Last year, the number of YouTube channels that made at least $10,000 in revenue was up more than 40% over the year.

Its stock is trading at $2,757.57 with a market capitalization of $1.96 trillion. It had climbed to a high of $3,041.85 in November last year. The stock had fallen to a 52-week low of $2,002.02 in March last year.