Analysts think Google Cloud's earnings show its AI strategy is working — here's why

Google Cloud is riding on a wave of optimism following an impressive earnings report and finally appears to be priming itself for a major challenge in the generative AI race, experts have told ITPro.

The cloud division recorded $9 billion in revenue for Q1 2024, up from just under $7.5 billion in 2023. At the same point in 2022, Google Cloud was generating just shy of $6 billion, showing a bigger leap this year for the hyperscaler.

Revenue at Google as a whole stands at $80 billion as the firm enters 2024, up 15% from last year's total revenue which was just shy of $70 billion. 

Google CEO Sundar Pichai celebrated the firm's cloud operations as one of the tech giant’s “clear paths to AI monetization”, allowing it to service the needs of enterprise customers. 

“Our Cloud business continues to grow, as we bring the best of Google AI to enterprise customers and organizations around the world,” he said in an earnings call.

It’s not just Google’s top brass that's touting the significance of the firm’s recent performance either - speaking to ITPro, Gartner analyst Chirag Dekate made clear the “foundational advantage” that Google has in the generative AI space. 

“You're going to see Google start to separate away from the pack,” Dekate said. 

Dekate reflected on Google Cloud Next 2024 as a palpable show of force for the company. 

“I saw amazing innovations at play, and Google truly [flexed] its muscles as an AI-first company,” Dekate said.

Google Cloud Next certainly seems to have impressed upon the industry a sense of the firm's strength, and this recent earnings call only serves to further evidence its bullish outlook for the year ahead.

Google Cloud is streamlined and poised to innovate 

Though Google had somewhat of a clumsy start in generative AI, the firm has redoubled its efforts over the last year and now looks well-positioned to make waves in the space for a few key reasons.

One reason is the firm's lead in research, an area Pichai acknowledged in light of the earnings call and one the CEO feels Google excels at as a frontrunner.

Pichai noted that Google recently consolidated a number of its AI divisions under Google DeepMind, also drawing attention to the “breakthrough” nature of Gemini Pro 1.5.

“They basically finalized the integration of DeepMind and Google research, enabling them to innovate faster,” Dekate said. This not only allows Google to innovate at scale, Dekate added, but also to put products and tools “in the hands of the customer faster,” thus improving the firm's position as both a developer and a supplier of generative AI tools, particularly for the enterprise.

“You are now going to see … Google not just innovate next-generation models, but infuse them in their product ecosystem faster and create market disruptor moments,” Dekate said.

Google’s infrastructure is also a key differentiator, and Dekate noted that the firm is investing heavily in “every layer” of generative AI, from physical materials to software and tools. 

“You now have the emergence of foundational building blocks - that enables you to change the economics of how you deliver innovative models in the market,” Dekate said.

By and large, Dekate said this recent earnings call is tangible proof that the firm is surging forward in the generative AI space with a successful overall business strategy that seems to be working. The hyperscaler finally appears to have a concise strategy alongside competitors in the space such as Microsoft, he added.

“In this ecosystem, where Google is firing on all cylinders, Google competitors are going to struggle to play catch up,” Dekate said.