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After the U.S. stock market closed on Tuesday, Google's parent company Alphabet released earnings that exceeded expectations, with strong performances in its cloud services and search businesses, and AI helping Q2 cloud revenue exceed $10 billion for the first time.

Google then held an earnings call, where company executives updated investors on the company's latest developments in AI investments, future prospects, and more.

Google said that AI-driven search improvements have increased search usage and user satisfaction, while AI products have helped grow its cloud business. The risk of "underinvestment" in AI is far greater than the risk of "overinvestment."

In terms of performance guidance, Google expects that operating profit margins in fiscal 2024 will be higher than last year, but the third quarter may lag behind due to depreciation and high expenses;Capital expenditures reached $13 billion in the second quarter, and quarterly spending is expected to remain around $12 billion for the remainder of 2024, compared with $12 billion in the first quarter of this year.

Here are the highlights of the call:

1. The risk of “underinvestment” in AI is far greater than the risk of “overinvestment”

During the conference call, Google CEO Sundar Pichai emphasized that for Alphabet, the risk of underinvesting in AI is far greater than the risk of overinvesting.

He noted that even if overinvestment occurs, current investments in infrastructure such as data centers can be used for other tasks, and not staying ahead in the AI ​​race will have more serious negative consequences for companies.

2. AI-driven search improvements increase search usage and user satisfaction

Google said that the company's AI overview tool has achieved positive results. The tool can summarize the content at the top of the search page, improve search usage and user satisfaction, and especially attract more young users. Pichai said that AI not only expands the types of queries that Google can handle, but also opens up powerful new ways for search.

3. AI products help cloud business growth

Generative AI products have added new growth drivers to Google's cloud business. Google CFO Ruth Porat said that most of Google Cloud's top 100 customers are using Alphabet's generative AI solutions. Google Cloud's profit margins improved in the second quarter, reflecting the division's revenue strength and the company's efficiency gains.

4. FY2024 operating margin will be higher than last year, but the third quarter may lag behind

Chief Financial Officer Ruth Porat said the company expects full-year operating margins to be higher in fiscal 2024 than in 2023, but the third quarter may be negatively impacted by depreciation and higher expenses, partly due to increased investment in AI, and the launch of a new generation of Pixel phones will also push up spending.

Porat also revealed that capital expenditures reached $13 billion in the second quarter, and quarterly spending is expected to remain around $12 billion for the remainder of 2024.

After the earnings call, Alphabet's stock price fell more than 2% in after-hours trading in the U.S. stock market and is currently trading at $183.6.