(Bloomberg) -- Google parent Alphabet Inc. showed on Tuesday that an expensive foray into artificial intelligence is starting to pay off, delivering better-than-expected traction for its cloud computing business and driving more usage for its flagship search engine.

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Reporting healthy gains in both revenue and profit, Google did much to allay Wall Street concerns that the company has squandered an early lead in AI, and that its heavy investments to catch the likes of Microsoft Corp. and OpenAI might not yield dividends. Revenue, excluding partner payouts, increased to $74.6 billion, up about 16% from the year-ago quarter and surpassing the $72.9 billion analysts predicted on average, according to data compiled by Bloomberg. Net income was $2.12 per share, the company said Tuesday in a statement, compared with estimates of $1.84 per share.

As its main search business matures, Google is betting on growth from its cloud division, which supplies computing power, software and services to other companies. Google is drawing more cloud customers using its AI expertise to gain ground on larger rivals Amazon.com Inc. and Microsoft, making inroads by signing on fast-growing AI startups — some of which were founded by former Googlers — as clients.

“In cloud, our AI solutions are helping drive deeper product adoption with existing customers, attract new customers and win larger deals,” Alphabet Chief Executive Officer Sundar Pichai said in the statement.

Alphabet shares rose more than 5% in extended trading following the report. The stock has gained 21% this year.

Sales in the cloud division jumped to $11.4 billion, a 35% rise from the year-ago period and better than analysts had projected. Google is third in the market, but there is room for it to grow alongside Amazon and Microsoft, Ido Caspi, a research analyst at Global X ETFs, wrote in an email. “Increasing enterprise AI workloads will continue to bolster cloud revenues,” Caspi said.

Google is making progress in addressing investor concerns about the billions it spends on AI infrastructure and research. Pichai said on a conference call with investors after the report that Google reduced the cost of producing AI answers in search queries by over 90% in 18 months, “through hardware, engineering, and technical breakthroughs,” while doubling the size of Gemini, the generative artificial intelligence model powering the answers.