Google Cloud’s $37B Run Rate, Record Profit And Gemini: 5 Google Earnings Takeaways

Google Cloud generated record sales and profitability in Q4 2023. Here’s five key takeaways partners, investors and customers should know from Google’s Q4 2023 earnings results.

Google Cloud bested Wall Street expectations by generating over $9.1 billion in revenue during its fourth quarter 2023 as the cloud giant reported its most profitable quarter in company history.

Mountain View, Calif.-based Google Cloud accounted for nearly 11 percent of parent company Google’s total revenue of $86 billion in Q4 2023.

Artificial intelligence was top of mind for Google CEO Sundar Pichai and his leadership team during Google’s Q4 2023 earnings call this week with a particular focus on highlighting momentum around Gemini, Duet AI and Vertex AI.

“Using Vertex AI, Samsung recently announced its Galaxy S24 Series smartphone with Gemini and Imagen 2, our advanced text-to-image model,” said Pichai. “Victoria Secret & Company will look to personalize and improve the customer experience with Gemini, Vertex AI search and conversations. … In Workspace, Duet AI is helping employees benefit from improved productivity and creativity with thousands of paying customers around the world, including Singapore Post, Uber and Woolworths.”

Overall, 2023 was a year of “profound innovation and product momentum,” said Pichai. “I’m excited for what’s ahead in 2024.”

CRN takes a look at the five most important takeaways from Google Cloud’s Q4 2023 financial earnings results this week including sales growth, profitability, and everything AI and generative AI.

No. 1: Google Cloud Records Record Profitability

Mountain View, Calif.-based Google Cloud reported $864 million in operating income for fourth quarter 2023, representing the most profitable quarter in the cloud company’s history.

Google Cloud’s operating income of $864 million in Q4 2023 is up significantly from an operating loss of $186 million during the same quarter one year ago.

This means Google Cloud improved its operating income by over $1 billion from Q4 2022 to Q4 2023, which is a significant accomplishment.

For years, Google Cloud was in the red due to the company investing billions each quarter to expand its global cloud infrastructure and services reach. That changed in 2023 when Google Cloud reported a profit for the first time in its history in Q1 2023 by generating $191 million in operation income.

For the entire 2023, Google Cloud achieved a 5.2 percent operating margin which marks the company’s first year with a positive operating margin. For example, in 2022, Google recorded a 7.2 percent operating margin loss. In 2020, Google Cloud reported a 42.9 percent operating margin loss during the year.

“Our infrastructure is key to realizing our big AI ambitions. It’s a major differentiator for us,” said Pichai. “We continue to invest responsibly in our data centers and compute to support this new wave of growth in AI-powered services for us and for our customers. Through this, we are being disciplined in how we run the company.”

With four straight quarters of positive operating income, Google Cloud has positioned itself to never be in the red again.

Click through to read the four other big takeaways from Google Cloud’s Q4 2023 earnings results.

Gemini Is ‘Only Going To Get Better’; Gemini Ultra ‘Coming Soon’

Google’s new large AI model Gemini was front and center in the discussion during the company’s earnings call this week, unveiling that Gemini will be included in Google’s core products.

“[Gemini] can run on everything from mobile devices to data centers,” said CEO Sundar Pichai. “Gemini gives us a great foundation. It’s already demonstrating state of the art capabilities, and it’s only going to get better.”

Google said it is going to roll out even more advanced versions of Gemini in the future.

“Gemini Ultra is coming soon. The team is already working on the next versions and bringing it to our products that starts with search,” said Google’s CEO. “We are already experimenting with Gemini in search, where it’s making our Search Generative Experience (SGE) faster for users. We have seen a 40-percent reduction in latency in English in the US.”

Gemini will be injected into core products, such as Google search and Google Ads, as the AI product looks to boost natural language conversational capabilities. Gemini was engineered to understand and combine video, audio, text, images and code in a natively multimodal way.

Google Cloud Boosts Sales By 26 Percent

Google Cloud, the world’s third largest cloud computing company, bested Wall Street analysts revenue estimates by generating $9.19 billion in total sales in Q4 2023.

This represents a nearly 26 percent year-over-year sales growth compared to $7.32 billion sales Google Cloud captured in Q4 2022.

Google Cloud now has an annual run rate over $36.8 billion.

Google Cloud’s sales growth in the fourth quarter was higher compared to its previous quarters. In third quarter 2023, Google Cloud grew sales 22 percent year over year.

For both its first- and second-quarter 2023, the company’s sales increased 28 percent year over year.

Google Cloud generates sales from the Google Cloud Platform, platform services, infrastructure, collaboration tools like Google Workspace and from a slew of other IT services for customers. It receives revenue primarily from consumption-based fees and subscriptions from GCP services, Workspace tools and other services.

Vertex AI Sees ‘Nearly 6X’ Increase; ‘Thousands Of Companies’ Using Duet AI

Google Cloud’s AI platform Vertex AI—which lets users train and deploy ML models and AI applications and customize large language models (LLMs)—saw customer momentum pick up significantly.

“Vertex AI has seen strong adoption with the API request increasing nearly 6x from H1 (first half of 2023) to H2 (second half of 2023),” said Google’s CEO.

Launched in 2023, Vertex AI offers a purpose-built machine learning operations (MLOps) toolset for data scientists and engineers to automate, standardize and manage AI projects. Vertex AI’s ability to help developers build GenAI applications is helping Google’s massive customer base. “It helps customers like Deutsche Telekom and Moody’s discover, customize, augment and deploy over 130 GenAI models, including PaLM, Med-PaLM, Sec-PaLM and Gemini, as well as popular open source and partner models,” Pichai said.

Another innovative AI product Google Cloud launched last year that is seeing market traction is Duet AI, the company’s AI-powered collaborator. Duet AI aims to boost productivity and operations by helping users with everything from writing code to analyzing data.

“Since its launch, thousands of companies and more than a million trusted testers have used Duet AI,” Pichai said. “It will incorporate Gemini soon. In Workspace, Duet AI is helping employees benefit from improved productivity and creativity with thousands of paying customers around the world, including Singapore Post, Uber and Woolworths.”

Google’s AI Is Helping Overall Cloud Sales

As customers look to create new or enhance their existing AI capabilities, many are seeking a cloud platform as their foundation.

Pichai highlighted recent big customer wins that leveraged Google’s AI solutions such as mobile giant Samsung and fashion company Victoria Secret.

“Using Vertex AI, Samsung recently announced its Galaxy S24 Series smartphone with Gemini and Imagen 2, our advanced text-to-image model. Shutterstock has added Imagen 2 to their AI image generator, enabling users to turn simple text prompts into unique visuals,” said Pichai. “Victoria Secret & Company will look to personalize and improve the customer experience with Gemini, Vertex AI search and conversations.”

Google’s CEO added that there are nearly 90,000 GenAI-enabled Google Cloud consultant partners, while demand from independent software vendors (ISVs) went through the roof in 2023.

“With ISVs, we have nearly tripled the number of co-sell deals from 2022 to 2023,” Pichai said.

Overall, AI is helping to grow Google’s customer base and mindshare in the cloud market.

“AI is definitely something which is driving interest and early adoption,” said Pichai. “Greater than 70 percent of GenAI unions are using Google Cloud. And so I think it’s an area where our strengths will continue to play out as we go through 2024, especially when I look at innovation ahead from us on the AI front.”