What was the most heralded story from Google parent Alphabet's (GOOG 0.87%) (GOOGL 0.75%) first-quarter update Thursday evening? The company's better-than-expected revenue growth. Alphabet reported Q1 revenue of $90.2 billion, higher than the consensus Wall Street estimate of $89.1 billion.
However, I don't think this story was the most important one for investors. Sure, Alphabet's share price jumped on Friday following the positive results. But the company has just given investors two strong reasons to remain bullish that are more significant than a quarterly revenue beat, in my opinion.
NASDAQ: GOOG
Key Data Points
Tariff headwinds aren't too concerning
Before the Q1 update, Alphabet stock was down roughly 16% year to date. Most of this decline can be attributed to worries about the negative impacts of the Trump administration's tariffs. It's probably fair to say that the White House's trade policy has been one of the four most disruptive factors for the stock market this century, alongside the dot-com bubble bursting, the 2007-2009 financial crisis, and the COVID-19 pandemic.
Google Chief Business Officer Philipp Schindler acknowledged the potential adverse effect on his company's business, noting in the Q1 earnings call that Google is "not immune to the macro environment." If he had stopped there, some might think the stock's recent sell-off was fully warranted.
However, Schindler kept talking. He mentioned President Donald Trump's decision to close the de minimis exemption of tariffs on Chinese imports valued at $800 or less. While this loophole closure is causing major worries for many U.S. businesses, Schindler said it would only "cause a slight headwind to our Ads business in 2025, primarily from APAC-based [Asia-Pacific] retailers."
Granted, the company could still feel the impact of tariffs, measured in billions of dollars. After all, Google advertising is on track to generate revenue of more than $267 billion in 2025 based on the Q1 results. Still, a "slight headwind" to Google's advertising revenue should make investors breathe a big sigh of relief.
AI continues to help Google Search, not hurt it
After OpenAI launched ChatGPT in late 2022, some proclaimed that generative artificial intelligence (AI) presented a huge threat to Google Search. A few even argued that it could be an existential threat. And there were some legitimate reasons for concern at first.
I think it's a much different story now, though. Alphabet and Google CEO Sundar Pichai confirmed this with his prepared remarks in the Q1 earnings call.
Pichai said that AI Overviews, Google's integration of generative AI into its search engine, "now has more than 1.5 billion users every month." He added, "Nearly a year after we launched AI Overviews in the U.S., we continue to see that usage growth is increasing as people learn that Search is more useful for more of their queries."
Google hasn't stopped with AI Overviews, though. It released AI Mode last month. This new technology offers more advanced reasoning and multimodal capabilities. Pichai noted that users are providing "really positive feedback" about AI Mode's "design, fast response time, and ability to understand complex, nuanced questions."
Management's comments about how AI is helping Google Search appear to be backed up by the numbers. Google advertising revenue jumped roughly 8.5% year over year in Q1. Operating income from Google Services, which includes advertising, subscriptions, platforms, and devices, soared 17.1%.
What Alphabet executives didn't talk about
But what about the federal court rulings that Google is illegally running a monopoly? Alphabet executives didn't talk about them. That's understandable, though. Management teams rarely make public comments on legal matters.
I think the antitrust decisions against Google present legitimate reasons for investors to be concerned. The company's business could be negatively impacted, depending on the final outcome of the lawsuits.
Importantly, though, we don't know yet what the final outcome will be. Google could successfully appeal the rulings against it. Even if it loses, the remedies the company could be required to make might be less problematic than anticipated.
For now, investors have strong reasons to be bullish about Alphabet stock.
