(Reuters) - Shares of Alphabet Inc GOOGL.O rose nearly 9% in premarket trading on Friday, after the company handily beat Wall Street targets on higher ad sales and touted growth at its cloud unit, a high-margin business it is leaning more on to drive growth.
The company's cloud business is much smaller compared with market leader Amazon's AMZN.O AWS and Microsoft's MSFT.O Azure, but Wall Street analysts were upbeat about the $2 billion quarterly revenue from the unit.
Google Chief Executive Officer Sundar Pichai, who has big ambitions to eventually generate more revenue from the company’s cloud business than its mainstay ad business, said the unit is now at an annual revenue run rate of $8 billion and would triple sales staff over the next few years.
“Much smaller than AWS, but like Azure, growing faster,” Baird analysts wrote in a note.
Amazon, which also reported on Thursday, said AWS raked in $8.4 billion in revenue in the second quarter, a 37% jump from a year earlier. Azure sales jumped 64% in the fourth quarter.
The rise in Alphabet’s shares, set for their biggest single-day gain in four years, could help the stock catch up with its peers this year. Through Thursday’s close, Alphabet had risen 9 percent this year, compared with more than 30% for both Amazon and Microsoft.
Alphabet beat second-quarter revenue and earnings expectations on higher ad sales, bouncing back from a rare revenue miss in the first quarter, and offered no worrisome guidance about increasing regulatory scrutiny.
Eighteen Wall Street brokerages raised their price targets on the stock, with Wedbush and Evercore making the most aggressive moves by raising their targets by $150. About 90% of all analysts covering the stock have a “buy” or higher rating.
Still, questions linger about whether privacy, content moderation and proposed antitrust rules in the United States and other high-revenue countries will online advertising.
“We expect the negative news flow to continue this year and Big Tech is clearly coming under increased scrutiny,” Monness Crespi Hardt analyst Brian White wrote in a note.
Alphabet on Friday acknowledged a broader U.S. Department of Justice antitrust review of large technology firms and said it will continue to engage with the regulator.
Reporting by Munsif Vengattil in Bengaluru; Editing by Saumyadeb Chakrabarty
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