After early stumbles in artificial intelligence, Google is on a roll.
Its A.I. system, Gemini, has leapfrogged rivals. The technology has begun boosting YouTube viewership through its recommendations, and increasing search traffic by giving users concise answers.
Those businesses lifted sales at Alphabet, Google’s parent company, to $113.8 billion in the quarter ending December, an 18 percent increase from the same period a year ago. The company said its annual revenue last year eclipsed $400 billion for the first time, a milestone it now shares with Apple, which sells high-priced iPhones, and Amazon, which has a massive e-commerce business.
Profits in the final quarter of the year jumped 30 percent to $34.5 billion.
The results exceeded Wall Street’s expectations of quarterly sales of $111 billion and profit of $32 billion. Alphabet shares fell slightly in after-hours trading, largely holding its gains over the past three months when its market value rose more than $600 billion to $4.02 trillion.
As an A.I. arms race accelerates across Silicon Valley, the largest tech companies are being scrutinized as much for the money they make as the money they spend. Investors want businesses to pour enough money into expensive new data centers, the computing sites powering A.I, to support the booming technology. Still, they also want companies to steer clear of making a dent in their swelling profits.
On Wednesday, Alphabet committed to spending $175 billion to $185 billion on capital expenditures this year as it races to build A.I. data centers across the country to ensure Gemini’s wide distribution. That commitment builds on last year’s, when the company spent more than $90 billion on such projects.
Last week, Meta and Microsoft signaled they would each spend about $100 billion or more in capital expenditures this year, as the A.I. build out continues. Meta’s share price soared last week after reporting revenue growth, but Microsoft shares tumbled after it said its A.I. business didn’t show big gains despite heavy investments.
“Google is now being seen as the biggest winner in A.I.,” said Gil Luria, head of technology research at D.A. Davidson. “Good results are going to create a relief that at least somebody is winning in the next big market.”
In November, Google revealed an update to Gemini that improved on its predecessor’s ability to do research, create software programs and organize email. The model outperformed rival systems from A.I. start-ups OpenAI and Anthropic, which have tried to cut into Google’s dominance in the internet search business.
The newest Gemini model is now automatically fulfilling people’s Google Search queries, delivering written answers called A.I. Overviews. The overviews are prompting people to do more Google searches, the company said.
Sales from Google Search increased 17 percent to $63 billion in the quarter. It accounted for more than half of the company’s revenue.
YouTube, Alphabet’s video streaming service, has also benefited from Gemini. The company has used the model to help it identify and surface videos that may interest users, which has contributed to increased time spent watching videos and advertisements. YouTube sales increased 9 percent to $11.4 billion in the quarter.
Gemini has also become a cornerstone of Google’s booming cloud storage business. Last year, the company signed more billion-dollar deals with businesses to buy its A.I. software and technology than it did in the previous two years combined.
Google’s cloud sales rose 48 percent to $17.7 billion in the quarter. But it still has a backlog of potential customers.
Gemini’s performance has led to a swift reversal of Google’s prospects. Three years ago, the company issued a “code red” after OpenAI released its ChatGPT chatbot and began siphoning off traffic that once went to Google Search. Google raced to develop products to fend off A.I. competitors.
Now, Google is widely viewed as enjoying advantages its competitors lack. It designs its own A.I. chip called a tensor processing unit, or TPU, which costs less than the Nvidia chips that rivals rely on. Its established cloud business came with many existing customers. And Google DeepMind, the research lab which develops its A.I. models, ranks among the best in the field.
(The New York Times has sued OpenAI and Microsoft, claiming copyright infringement of news content related to A.I. systems. The two companies have denied the suit’s claims.)
Regulators now appear to be the most serious threat to Google’s business. A federal judge, following last year’s ruling that the company was guilty of having a monopoly over some portions of advertising software, is expected to determine in the coming weeks whether it must sell off parts of that business. The Justice Department said on Tuesday it plans to appeal the remedies ordered in a separate federal antitrust case that found Google guilty of having an illegal monopoly over internet search.
The company is also facing threats overseas. In Britain, regulators last week proposed that publishers be able to opt out of Google’s A.I. Overviews and other features. They are also suggesting that Google credit publishers in A.I. results, which would give businesses “a fairer deal over how their content is used.”
“There’s going to be changes to how Google operates and places where they have to bend a little bit,” said Brian Wieser, a principal analyst at Madison and Wall, which tracks the digital advertising industry. “But on the advertising side, it’s hard to see anything that will cause them to lose revenues because their scale is unmatched.”
Tripp Mickle reports on some of the world’s biggest tech companies, including Nvidia, Google and Apple. He also writes about trends across the tech industry like layoffs and artificial intelligence.
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