Google Cloud Finally Takes Off

Sundar Pichai, take a bow. Google parent Alphabet delivered some red-hot fourth-quarter numbers on Wednesday, a sign that—like its fellow digital ad giant, Meta Platforms—it is enjoying the fruits of its big investment in AI. Alphabet reported both an acceleration in Google’s search revenue growth to nearly 17%, from 15% in the third quarter, and a 14 percentage point lift in Google Cloud’s revenue growth to 48%. Anyone who suggested during Google’s struggles with AI a couple of years ago that Pichai should step aside—that would be me—looks downright stupid now.

The search growth should put to rest all those worries investors had a year or two ago that AI chatbots would undermine Google’s search business. Instead, AI is helping Google improve the effectiveness of its ads and enabling it to put ads on more-complex search queries than in the past, Chief Business Officer Philipp Schindler told analysts. More striking, though, was Google Cloud’s growth. On the fourth-quarter revenue, the cloud business is on an annual run rate of $71 billion, which is extraordinary for a business that had less than $20 billion in revenue in 2021. (Industry leader Amazon Web Services, by comparison, was on a $132 billion run rate as of the third quarter; we’ll find out on Thursday how it performed in the fourth quarter.) Also notable is that Google achieved this growth while lifting its operating margin to 30%, compared with 23.7% in the third quarter.