Over 25% of Google’s code is now written by AI—and CEO Sundar Pichai says it’s just the start
Demand for AI offerings from Alphabet’s cloud business helped drive an impressive revenue and earnings beat.
Some have accused the tech giants of blowing AI smoke on earnings calls—touting the supposed benefits of massive capital expenditures without reporting any tangible impact on productivity or savings. Google-parent Alphabet, however, says it is making big progress on both fronts. More than a quarter of all new code at the search giant is now generated by AI, CEO Sundar Pichai said during the company’s third-quarter earnings call on Tuesday.
That’s only a small part of how Alphabet executives say the company’s long-running AI efforts are beginning to benefit its balance sheet. The company says its impressive Q3 performance—earnings beat analyst predictions—was driven, in part, by its cloud business. The segment generated quarterly revenues of $11.4 billion, up 35% from the same period last year, as Pinchai said artificial intelligence offerings helped attract new enterprise customers and win larger deals.
Pichai repeatedly touted the success of companies using various AI tools running on Google’s Gemini models, which he said has helped drive 30% deeper product adoption among existing customers.
“We are uniquely positioned to lead in the era of AI because of our differentiated full stack approach to AI innovation,” he said, “and we are now seeing this operate at scale.”
“AI fatigue” may have factored into a slight stock sell-off after the company’s modest second-quarter earnings beat, which was marred by lower-than-expected YouTube ad revenue. Investors cheered the third-quarter news, however, with shares popping roughly 6% Wednesday morning.
Shareholders have seen their investment grow nearly 30% this year, compared the S&P 500’s 23% gain.
Google touts AI benefits beyond the cloud
Outside the cloud, Pichai cited another company milestone: For the first time, total YouTube ad and subscription revenues exceeded $50 billion over the past four quarters. That complemented a strong beat from Google’s search business, which CFO Anat Ashkenazi noted remains the company’s biggest contributor to revenue growth. The segment generated $49.4 billion in revenue, up 12.3% from last year.
“AI really supercharges search,” chief business officer Philipp Schindler said on the call. “Our new AI-powered features make searches more helpful, and we continue to see great feedback, particularly from younger users.”
The AI revolution also figures to change how the company hires. Overall, Alphabet’s headcount is down by over 1,000 compared to a year ago, according to Fortune’s Kali Hays. Google has worked to reorganize and consolidate its teams, which has included growing the footprint of its core AI group, DeepMind.
Ashkenazi, who arrived in June after 23 years at drugmaker Eli Lilly, said management was focused on using AI to streamline operations.
“I plan to build on these efforts but also evaluate where we might be able to accelerate work and where we might need to pivot to free up capital for more attractive opportunities,” she said.
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