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Alphabet, the parent company of Google, has revealed that its significant investment in artificial intelligence (AI) is starting to deliver promising results.

This has led to better-than-expected traction for its cloud computing business and increased usage of its flagship search engine.

In reporting healthy gains in both revenue and profit, Google has eased Wall Street's concerns that the company might have squandered its early lead in AI.

Analysts had feared that heavy investments to compete with the likes of Microsoft and OpenAI might not yield dividends.

For the recent quarter, Alphabet reported that revenue, excluding partner payouts, increased to $74.6 billion, marking a 16 percent rise from the same quarter in 2023.

As Google's primary search business matures, the company is turning its focus to growth from its cloud division.

This division provides computing power, software, and services to other companies.

Utilizing its AI expertise, Google is attracting more cloud customers, gaining ground on larger rivals such as Amazon and Microsoft.

Part of its strategy includes signing up fast-growing AI start-ups, some of which were founded by former Google employees.

"In cloud, our AI solutions are helping drive deeper product adoption with existing customers, attract new customers, and win larger deals," Alphabet CEO Sundar Pichai said in a statement.

Following the earnings report, Alphabet shares rose more than five percent in extended trading. The stock has gained 21 percent this year. Sales in the cloud division jumped to $11.4 billion, a 35 percent rise from the previous year, exceeding analysts' projections.

Google has also made progress in addressing investor concerns about the substantial sums it spends on AI infrastructure and research.

On a conference call with investors, Pichai highlighted that Google had reduced the cost of producing AI answers in search queries by over 90 percent in 18 months through advancements in hardware, engineering, and technical breakthroughs.

He also noted that the company had doubled the size of Gemini, the generative AI model powering search answers.

Additionally, Google is investing heavily in new forms of power, including nuclear, to handle the anticipated future load of AI progress.

Pichai mentioned that more than a quarter of Alphabet's new computer code is written by AI, reflecting the company's integration of technology to enhance operational efficiency.

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