Here's How Generative AI Factors Into Alphabet's Plan for Growth

When MTV launched in 1981, the first video it aired was The Buggles' "Video Killed the Radio Star." At the time, it seemed as if the song's premise might come true. Over four decades later, though, radio remains strong, and MTV's heyday is long gone.

This music trivia comes to mind when considering the impact of generative AI on Google parent Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL). After OpenAI introduced ChatGPT in late 2022, some proclaimed generative AI presented an existential threat to Google. But could the technology help Alphabet instead of hurting it? The company thinks so.

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Here's how generative AI factors into Alphabet's plans for growth.

Google Cloud

Jack Caporal, research director for The Motley Fool, analyzed all of Alphabet's references to AI in earnings calls from the end of December 2023 through September 2024. He concluded that Alphabet views "generative AI as a once-in-a-generation opportunity in which it has deep institutional expertise." The obvious way generative AI could help Alphabet grow is in its Google Cloud business.

Google Cloud ranks as the third-largest cloud services provider, behind Amazon Web Services (AWS) and Microsoft. In the fourth quarter of 2024, Google Cloud's revenue soared 30% to $11.9 billion. In Alphabet's Q4 earnings call, CFO Anat Ashkenazi attributed much of this growth to "very strong demand for our AI products." She added, "And we exited the year with more demand than we had available capacity."

Those generative AI products include Vertex AI Studio, which helps customers rapidly prototype and test generative AI models. Vertex AI Builder supports the development of generative AI agents and applications. Generative AI Document Summarization extracts text from PDFs and summarizes the text. Gemini Code Assist helps create, modify, and troubleshoot software code.

While Google Cloud (like AWS and Microsoft) uses Nvidia's GPUs, the unit also relies upon its own chips to handle generative AI models. Google's Tensor Processing Units (TPUs), including its Trillium chip, are custom-designed AI accelerators used in the training and inference of AI models. Its Axion chips are CPUs based on Arm's Neoverse V2 platform.

Advertising

As important as Google Cloud is to Alphabet, the company still makes most of its money from advertising on its Google Search and YouTube platforms. Generative AI is key to the growth of these products, too.

The introduction of AI Overviews (generative AI-generated summaries of search results) in Google Search has proven highly successful so far. Alphabet and Google CEO Sundar Pichai said in the Q4 earnings call, "People use Search more with AI Overviews and usage growth increases over time as people learn that they can ask new types of questions."

Google Circle to Search is available on Android phones. It allows users to search for information about something displayed on their smartphone screens by circling, highlighting, or tapping the items. Pichai said this functionality is especially popular with younger users. He added, "Those who have tried Circle to Search before now use it to start more than 10% of their searches."

The company is also offering generative AI tools that help customers develop and manage advertising campaigns. Chief business officer Philipp Schindler said in the Q4 earnings call, "Based on a Nielsen meta-analysis of marketing mix models, on average, Google AI-powered video campaigns on YouTube delivered 17% higher return on advertising spend than manual campaigns."

Alphabet's generative AI future

What does Alphabet's generative AI future hold? Agentic AI especially stands out as a key growth driver.

The company's Gemini 2.0 model is built for agentic AI. Project Astra is Google's initiative to develop an autonomous AI agent that runs on smartphones and smart glasses. Users can speak to the AI agent or use video to allow it to see what they see. Project Mariner has multimodal and reasoning capabilities and can automate tasks in browsers. Jules is an AI agent that helps create Javascript and Python code.

Ultimately, Alphabet's efforts to develop artificial general intelligence (AGI), which will likely use generative AI as a building block, could open up its biggest growth opportunity. Google DeepMind CEO Demis Hassabis believes that AGI could be available within the next 10 years.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Keith Speights has positions in Alphabet, Amazon, and Microsoft. The Motley Fool has positions in and recommends Alphabet, Amazon, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.