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Alphabet has announced its first-ever dividend alongside a $70bn stock buyback, in moves cheered by investors as Google’s parent company also reported strong growth across its main business lines.
Revenue rose 15 per cent in the first quarter to $80.5bn from $69.8bn a year ago, the Silicon Valley giant reported on Thursday, beating analysts’ expectations for $79bn. Net income was $23.7bn, up 57 per cent from $15.1bn in the same period a year earlier.
Shares rose as much as 13 per cent in pre-market trading, positioning Alphabet to add more than $250bn to its market capitalisation and push above $2tn, where it would join “Magnificent Seven” peers Microsoft, Apple and Nvidia. Microsoft also reported better than expected earnings on Thursday.
Alphabet chief executive Sundar Pichai said the quarter represented a “strong performance from Search, YouTube and Cloud” and that Google was “well under way with our Gemini era”, referring to its generative artificial intelligence large language model (LLM).
“Our leadership in AI research and infrastructure, and our global product footprint, position us well for the next wave of AI innovation,” he added.
The first-quarter dividend of 20 cents a share is worth almost $2.5bn. The company added it “intends to pay quarterly cash dividends in the future”, a symbolic policy shift for the tech giant, which had previously only used share buybacks to return money to investors.
It follows a similar move by Meta earlier this year and underlines how US tech companies are now willing to give investors a greater share of their vast cash reserves, rather than hoarding them for investment or acquisitions.
The performance is a big boost for Pichai, who has been criticised for being slower than rivals to commercialise generative AI — particularly in the context of Microsoft’s $13bn partnership with OpenAI and its much-hyped ChatGPT — despite the technology being created in-house by its researchers.
It also helps move Google on from a setback in February, when it paused image generation in Gemini following a furore over its inaccurate historical depiction of different ethnicities and genders.
The financials and AI investment plans of Google and Microsoft had been in particular focus in light of the experience of rival Meta. The social media group’s shares plunged 11 per cent after chief executive Mark Zuckerberg said on Wednesday he would spend billions more than planned on AI, warning costs would have to increase “meaningfully before we make much revenue from some of these new products”.
Microsoft’s revenue in the quarter climbed 17 per cent to $61.9bn, driven by cloud computing sales and rampant demand for AI-related services on its Azure platform.
Google’s Cloud business revenue rose 28 per cent to $9.6bn as companies seek access to the vast computing power and chip infrastructure to train LLMs and ride the AI wave.
Alphabet’s capital expenditure rose to $12bn — more than the $10bn forecast — and chief financial officer Ruth Porat said the company would spend at least that amount per quarter for the rest of the year.
That means spending would rise to at least $48bn this year from $32.3bn in 2023, an increase of almost 50 per cent.
Capex at Microsoft similarly rose during the quarter to $14bn from $11.5bn a year earlier.
Analysts also flagged improvements to Alphabet’s operating margin, which expanded to 32 per cent from 25 per cent a year ago, beating expectations for 29 per cent. Porat said the measure validated “ongoing efforts to durably re-engineer our cost base”.
Brad Erickson of RBC Capital Markets said: “Maybe most important relative to the big after-hours move in the stock was margins came significantly ahead of expectations.”
It “provides a significantly better data point around management’s commitment to deliver cost savings over the next few years”, Erickson added.
Advertising revenue through search and YouTube, which accounts for more than three-quarters of Google’s top line, grew 13 per cent to $61.7bn, compared with analysts’ consensus forecast for $60.2bn.
Google will detail more of its plans in AI and search at its annual I/O developer conference on May 14 and 15 at its headquarters in Mountain View, California.
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