Alphabet reported stronger-than-expected second-quarter results on Wednesday, driven by robust demand for Google Cloud services and continued strength in digital advertising. The search and AI giant has simultaneously raised its full-year capital expenditure (capex) guidance to approximately $85 billion, up from the prior $75 billion target, and signaled further increases for 2026 as it scales data centers and network capacity.
Cloud Revenue Fuels Earnings Beat
Revenue from Google Cloud jumped nearly 32% year-over-year—well above Wall Street’s 26.5% growth forecast—helping to propel Alphabet past analysts’ estimates for both sales and profit. Chief Executive Sundar Pichai highlighted the company’s expanding portfolio of AI tools, custom TPUs (Tensor Processing Units), and GPU offerings as key drivers of cloud adoption. Alphabet’s cloud customer count rose 28% quarter-over-quarter, underlining that enterprise demand continues to outpace the company’s capacity to deploy servers fast enough.
Aggressive Capex Increase Surprises Investors
The announcement of a $10 billion boost to 2025 capex surprised many on the post-earnings analyst call. Portfolio manager Dave Wagner of Aptus Capital Advisors remarked that while Google delivered “an easy beat,” the increased spending offset some of the quarter’s positive momentum. Chief Financial Officer Anat Ashkenazi assured investors that capital outlays will climb further in 2026 to support data-center expansion and next-generation AI infrastructure.
Advertising Remains Steady
Alphabet’s core advertising business also showed resilience, with ad revenue up 10.4% to $71.3 billion, topping expectations of $69.5 billion. Executives cited the success of new AI-driven search features—such as AI Overviews and AI Mode, which has already reached 100 million monthly active users—as bolstering engagement and insulating Google from competition by standalone chatbots like ChatGPT.
Strategic AI Partnerships and Competitive Positioning
In a notable coup for Alphabet, OpenAI recently added Google Cloud as a capacity supplier alongside Microsoft Azure, providing further validation of Google’s AI infrastructure. Meanwhile, Google’s own AI chatbot, Gemini, has surpassed 450 million monthly users. These developments underscore Alphabet’s emphasis on AI as the central growth engine for both cloud and consumer-facing products.
Balancing Growth and Profitability
Despite investor concerns that heavy AI and cloud investments could pressure near-term margins, Alphabet and its peers maintain that such capex is essential to remain competitive—particularly against fast-evolving rivals in China and mounting pressure from regulatory and geopolitical challenges. The company’s leadership argues that sustained investment now will unlock new revenue streams and improve user experiences across search, advertising, and cloud platforms.
