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The emergence of GenAI technology is seen by some as a looming threat for Alphabet's (GOOG) Search business, but the company's strong, upside Q3 results suggest that not only is AI not a threat, but it's actually proving to be a potent growth catalyst. CEO Sundar Pichai proclaimed that the company's AI's investments are now paying off and generating momentum across its entire product portfolio, most notably including the Cloud business, which saw revenue growth accelerate to 35%. 

• Rewinding to FY23, GOOG's Cloud business was under the spotlight due to its sliding growth rates and underperformance relative to Microsoft (MSFT) Azure. For instance, in 3Q23, Cloud revenue increased by 22%, down from 27% in 2Q23. While Cloud revenue growth accelerated to 26% in 4Q23, that still lagged behind Azure's Q4 growth of 30%. 
• Fast forward to last night's 3Q24 earnings report, and those slowing growth concerns have faded even further into the rearview mirror. In fact, those worries were significantly eased last quarter after Cloud posted a 29% jump in revenue, crossing the $10.0 bln mark for the first time. However, it's now evident that Cloud is riding a new AI-infused growth wave, fueled by new customer wins, larger deals, and deeper product adoption among existing customers.
• New AI offerings are the key factor underlying these bullish trends. Some examples include Gemini Code Assist, which enables faster software development cycles, Security Command Center for cybersecurity and threat intelligence, and BigQuery for data analytics.
• In GOOG's core Search business, which still accounts for roughly 55% of total revenue, the rollout of new AI features is providing the advertising business with a boost. For instance, the company launched AI Overviews in the U.S. this past May, providing conversational summaries above the search results. Mr. Pichai stated that AI Overviews are driving stronger engagement, leading to higher search usage and user satisfaction. 
• These positive trends are supporting stronger ROIs for advertisers. In turn, Google Search & Other saw revenue increase by more than 12% to $49.4 bln, edging past expectations and down just a tick from last quarter's growth of 13.8%.
• Meanwhile, healthy demand for YouTube TV, NFL Sunday Ticket, and YouTube Music Premium drove subscription growth for the YouTube Platform. Strength in brand and direct ads pushed YouTube ad revenue higher by 12% yr/yr to $8.9 bln. Also, for the first time in its history, YouTube's combined ad and subscription revenue exceeded $50.0 bln.
• On the cost side of the equation, GOOG stated that it's pleased with the progress it has made with re-engineering its cost structure. Total operating expenses were up a manageable 5% in Q3 to $23.3 bln, helping to facilitate a 4.5 percentage point increase in operating margin to 32%. However, capital expenditures were up by about $5.0 bln on a yr/yr basis to $13.06 bln, reflecting GOOG's rising AI investments.

GOOG has struck the right balance between managing costs in order to support earnings growth and investing in its AI-centric growth initiatives in order to drive top-line growth. As those AI investments begin to pay off in a more substantive way, GOOG is experiencing an upswing in both revenue and earnings growth -- a decisively bullish combination for its stock.