Alphabet’s shares jumped about 3% on Friday after Google’s parent company released a strong earnings report, demonstrating that its investments in AI were driving growth in its core advertising business. Google’s advertising revenue increased by 8.5% in the first quarter, exceeding expectations and alleviating some investor concerns about the impact of declining U.S. ad spending and global trade tensions.
The positive earnings report came amid industry data from early April showing a sharp decline in U.S. digital ad spending from major advertisers like Temu and Shein, which had raised fears about the digital ad market. Additionally, reports that cloud computing rivals Amazon and Microsoft were scaling back some data center projects had sparked concerns that Big Tech companies might have been overly aggressive in their AI-related spending.
“Against the backdrop of negative sentiment and data checks, regulation woes, competition concerns and macro related fears, Alphabet reported a blow to bears, with… strong growth across all major segments,” Deutsche Bank analyst Benjamin Black wrote in a note to investors.
While Google noted that recent trade policy changes by the Trump administration would cause a “slight headwind” to its ads business this year, executives did not raise any alarm bells about a broad advertising slowdown. The company’s report helped lift social media stocks, with Meta Platforms rising 1.5%, Pinterest gaining nearly 2%, and Snap climbing more than 3%.
In addition to the strong earnings report, Alphabet announced a $70 billion share buyback plan and revealed that its AI Overviews feature now has 1.5 billion users per month, about a year after its launch. Analysts noted that Google has significant advantages in data and distribution in the AI race against competitors like OpenAI and Perplexity.
“Google is in a race versus OpenAI, Perplexity and others to drive AI usage, and we continue to believe Google has data and distribution advantages and has closed the … performance gap,” BofA Global Research said. Alphabet’s 12-month forward price-to-earnings ratio stands at 17.33, lower than Microsoft’s 26.56 and Meta’s 20.49. The stock has fallen about 16% this year, compared to losses of around 8% and 9% for Microsoft and Meta, respectively.
“Perhaps Dr. Google is just what this market needed — a healthy dose of strong fundamental performance,” Bernstein analyst Mark Shmulik said, highlighting the significance of Google’s strong earnings report in the current market environment.
