Alphabet accelerates investment in cloud computing
Alphabet’s second-quarter earnings report showed it beat Wall Street expectations thanks to new artificial intelligence (AI) features and a solid digital advertising market. “With growing demand for our cloud products and services, we are increasing our capital expenditures,” CEO Sundar Pichai said.
Alphabet shares have risen more than 18% since last quarter. The stock initially dipped in after-hours trading after the earnings report but quickly recovered as management shared more information about strong demand for its cloud business.
Still, the spending increase came as a surprise. “I don’t think anyone saw the change in the 2025 capital spending forecast. Google had a great quarter, but it was overshadowed by the $10 billion in capex,” said Dave Wagner, chief investment officer at Aptus Capital Advisors.
CFO Anat Ashkenazi confirmed that capital spending will continue to increase through 2026, driven by strong demand and growth opportunities. Despite the improvement in server deployment rates, Alphabet still cannot meet customer demand.
Previously, Google expected to spend about $75 billion on capital investment this year – part of the more than $320 billion that Big Tech poured into AI.
The AI boom is driving demand for cloud computing, helping Google Cloud expand its market share even as it trails Amazon and Microsoft. Thanks to its in-house TPU chip and comprehensive AI portfolio, Google Cloud customers grew 28% in the past quarter.
Notably, OpenAI has just added Google Cloud to its list of infrastructure partners, a surprising move as the two sides are rivals in the AI field, showing a trend of diversifying infrastructure to avoid dependence on Microsoft.
However, experts warn that large capital expenditures could affect short-term profit margins, although Alphabet insists it needs to invest heavily to maintain its advantage and maintain investor confidence.
AI Race
AI features like AI Overviews and AI Mode are helping Google Search increase engagement, as it faces pressure from chatbots like ChatGPT. AI Mode has attracted 100 million monthly active users in just two months of launch. Meanwhile, Gemini now has more than 450 million monthly active users.
Advertising, which accounts for about three-quarters of total revenue, grew 10.4% in the second quarter to $71.34 billion, beating LSEG’s forecast of $69.47 billion. “Hopefully, this will ease concerns that ChatGPT could impact Google’s search engine growth,” said Dan Morgan, portfolio manager at Synovus Trust.
Alphabet’s total revenue in the second quarter was $96.43 billion, higher than the forecast of $94 billion. Profit was $2.31 per share, exceeding the expectation of $2.18 per share.
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