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There has been plenty of scrutiny regarding Alphabet's (GOOG) recent splurge on AI-related technology and infrastructure, but the company's strong 1Q25 results once again demonstrated that its hefty investments are paying off. Robust adoption of GOOG's AI-powered features and tools across Search and Cloud and solid cost discipline -- total expenses increased by only 8% yr/yr -- drove EPS higher by 49% to $2.81, easily beating expectations. To top it off, GOOG also announced a new stock repurchase plan, authorizing it to repurchase up to an additional $70.0 bln of Class A and Class C shares.

GOOG's impressive results also ease concerns about the digital advertising market succumbing to a steep downturn due to tariffs and mounting macroeconomic uncertainty -- at least for the time being. During the earnings conference call, GOOG executives characterized advertiser demand as healthy, especially in the finance, retail, and travel verticals, which bodes well for Meta Platforms' (META) and Pinterest's (PINS) upcoming Q1 earnings reports on April 30 and May8, respectively. However, it's worth noting that Chief Business Officer Philipp Schindler expressed some caution last night when asked about the outlook for Q2 advertising revenue and potential macroeconomic headwinds, stating that it's "too early really to comment on that."

• Search remained resilient and is benefitting from healthy user engagement as GOOG integrates advanced AI features, enhancing the experience for both users and advertisers. In Q1, Search & Other revenue grew nearly 10% yr/yr to $50.7 bln, bolstered by GOOG's new GenAI tool, AI Overviews. Now serving 1.5 bln users per month, AI Overviews is driving higher user engagement while also improving advertiser outcomes and ROI. Despite launching AI overviews less than one year ago, the feature is already monetizing at approximately the same rate as traditional search.
• Although YouTube Ads revenue of $8.9 bln (+10%) narrowly missed analysts' expectations, the monetization rate remains strong, and the platform significantly contributed to the 18% jump in operating income for Google Services. The healthy monetization is supported by solid growth in paid subscription services, including YouTube Music and Premium, which exceeded 125 mln subscribers in Q1.
• After falling short of expectations last quarter, Google Cloud beat analysts' Q1 estimates with revenue soaring by 28% yr/yr to $12.3 bln. Google Cloud Platform (GCP) once again led the way, driven by robust demand from enterprises for products such as Vertex AI, AI agents, Cloud WAN, TPU accelerators, and Gemini AI models. During the earnings call, GOOG did warn that it could see some variability in Cloud revenue growth rates moving forward given that revenue is correlated with the timing of new capacity deployments.
• Last quarter, GOOG stunned participants when it forecasted staggering capex of $75.0 bln for FY25. Considering the turbulent macroeconomic conditions, it wouldn't have been too surprising had GOOG ratcheted its capex guidance lower. The company did not do that, though, sticking to its forecast instead, highlighting its commitment to AI and cloud leadership.

GOOG's upside Q1 results demonstrate broad-based strength across Search, YouTube, and Cloud, with AI and Gemini at the core of its outperformance. Additionally, GOOG's substantial stock buyback program and 5% bump in the quarterly dividend underscore its focus on long-term value creation for shareholders.