Cloud AI: the full picture

Quietly, shares of Google-parent Alphabet are on the verge of topping $5 trillion, and overtaking AI-leader Nvidia as the world's most valuable company. Cloud AI has emerged this Saturday as one of the stories drawing attention in Ethiopia.

Key facts

• Quietly, shares of Google-parent Alphabet are on the verge of topping $5 trillion, and overtaking AI-leader Nvidia as the world's most valuable company.
• The company reported revenue Wednesday that beat analyst estimates and Google Cloud revenue that surpassed $20 billion.
• Ever since Google was founded in 1998, search has been the core of the company’s identity.
• The company’s cloud-computing business was the undisputed star of parent company Alphabet’s first-quarter earnings, posting an eye-popping 63% revenue growth from the prior year, for a total of $20 billion.
• But lost in the excitement of the moment is something more fundamental: Google Cloud now represents 18% of the company’s overall business.

What we know

Going deeper, the company reported revenue Wednesday that beat analyst estimates and Google Cloud revenue that surpassed $20 billion.

On the substance, Ever since Google was founded in 1998, search has been the core of the company’s identity.

Beyond the headlines, the company’s cloud-computing business was the undisputed star of parent company Alphabet’s first-quarter earnings, posting an eye-popping 63% revenue growth from the prior year, for a total of $20 billion.

More precisely, But lost in the excitement of the moment is something more fundamental: Google Cloud now represents 18% of the company’s overall business.

It is worth noting that At this time last year, Google Cloud represented 13.6% of Alphabet’s total revenue.

By the numbers

At this stage, In the first quarter of 2024, Cloud was just 11.8%.

On a related note, In addition to the revenue growth, Google Cloud’s operating income tripled from the year-ago period to $6.6 billion.

Going deeper, more impressive still, the cloud business operating margin expanded from 9.4% a year ago to 32.9% in Q1.

On the substance, Right now, customer demand for AI is insatiable (Google Cloud’s current backlog is $460 billion) and Google’s cloud business is rising along with it.

The wider context

On a related note, the breakout in shares of Alphabet after a 10% surge on Thursday brings the company's 1-year gain to 140% and a market capitalization over $4.6 trillion.

Going deeper, At the same time, the world's biggest company — AI Kingpin Nvidia, now trading with a market cap under $4.9 trillion — is down more than 6% in two days following a Wall Street Journal report that business partner OpenAI missed internal revenue and growth estimates.

On the substance, If Nvidia doesn't rally into or after its report on May 20 — and the stock has indeed fallen after four of its last five earnings reports — the options market says odds are Alphabet will trade as the world's biggest company as early as May 15.

Beyond the headlines, Here's the math: for Alphabet to achieve Nvidia's current market cap, the stock needs to rally another 4% or so, to roughly $401 per share.

More precisely, Based on the premiums paid for call contracts around that strike, options traders are assigning about a 53% chance it could touch that level at any point between now and May 15.

The bottom line

• The company reported revenue Wednesday that beat analyst estimates and Google Cloud revenue that surpassed $20 billion.
• The company’s cloud-computing business was the undisputed star of parent company Alphabet’s first-quarter earnings, posting an eye-popping 63% revenue growth from the prior year, for a total of $20 billion.
• More impressive still, the cloud business operating margin expanded from 9.4% a year ago to 32.9% in Q1.