Alphabet GOOGL-Q disappointed Wall Street on Tuesday as holiday season advertising sales came in below expectations and overshadowed the company’s efforts in artificial intelligence and the cloud.
Shares fell more than 4% in after-hours trading.
Google, inventor of foundational technology for today’s AI boom, faces tough competition from the two players that have captured the business world’s attention, ChatGPT’s creator OpenAI and its financial backer Microsoft MSFT-Q.
Google is bringing a powerful suite of models called Gemini to its ChatGPT rival Bard. It struck a deal to invest up to $2 billion in high-profile AI startup Anthropic as it courts customers from larger cloud rivals Microsoft and Amazon AMZN-Q, and it is putting Gemini into advertisers’ hands so their dollars keep flowing to Google’s search business.
Still, Alphabet faces formidable challenges. AI’s advertising boost may remain far off, in a period of concern that geopolitical and economic uncertainty could discourage ad buyers. The U.S. has started probing AI investments including Alphabet's, Google is gearing up to appeal a major antitrust case it lost, and the company like others in technology has been cutting jobs.
Against this backdrop, Alphabet came short of expectations for ad revenue, recording $65.5 billion in the fourth quarter while analysts on average had estimated $66.1 billion, according to LSEG data. It had posted $59.0 billion a year earlier.
Alphabet has faced tough competition for ad budgets from other online platforms such as Facebook, Instagram, TikTok and Amazon.com, alongside mixed economic signals in the United States.
Overall revenue for the quarter ended Dec. 31 stood at $86.3 billion, compared with estimates of $85.3 billion, according to LSEG data.