Alphabet Has a Brilliant Fallback Plan on AI Even if Search Is Disrupted

Core Insights - Google Cloud is becoming the preferred platform for AI start-ups, significantly boosting Alphabet's profits [1][7][12] - Alphabet's stock is currently undervalued despite strong financial performance, with a revenue growth of 14% and earnings per share up 22% [1][2] - Concerns about the impact of AI on Google Search have not yet materialized, allowing for continued growth in both Search and Cloud segments [2][14] Financial Performance - Google Cloud's revenue grew 32% to $13.6 billion, with operating margins nearly doubling from 11.3% to 20.7% year-over-year [4][13] - Incremental revenue of $3.3 billion from Google Cloud resulted in $1.65 billion in operating profits, indicating margins above 50% on new cloud revenue [4][6] - The backlog for Google Cloud surged 18% sequentially and 38% year-over-year to $106 billion, suggesting sustained high growth potential [5][6] Strategic Developments - Management increased capital expenditure plans for 2025 from $75 billion to $85 billion due to high demand for Cloud services [6] - Google Cloud is attracting premier AI unicorns, with notable customers including OpenAI and Anthropic, enhancing its market position [7][9] - Google's historical expertise in AI research and development of proprietary AI chips has positioned it favorably in the cloud market [10][11] Future Outlook - If Google Search growth slows, Google Cloud's AI services could compensate for any decline, potentially leading to increased profits [14][15] - The success of AI unicorns using Google Cloud could drive further growth in the Cloud segment, offsetting any downturn in Search [14][15]