Google's $85 Billion Cloud Investment Signals AI-Driven Growth and Infrastructure Expansion

Google spent $14bn on servers in 91 days, plans more soon

G-Cloud on track for $50 billion revenue as AI creates a new generation of Google-eyed youth Google's parent company Alphabet has increased its capex budget for the year by $10 billion and now expects to spend $85 billion this year, and more in 2026. News of Alphabet's splurge came on an earnings call on which execs discussed Wednesday's Q2 results announcement [PDF] in which the company revealed revenue grew 14 percent year over year to $96.4 billion. Google Cloud revenue grew even faster, with its $13.6 billion representing 31 percent year over year growth and putting the business unit on target for $50 billion annual revenue - $20 billion ahead of HPE and a handful of billions behind Cisco. Operating income - a measure of profit Alphabet uses for its operating segments - grew by 141 percent at the G-Cloud, from Q2 2024's $1.2 billion to $2.8 billion. That's a welcome outcome for investors given Google Cloud did not produce a profit for 15 years. Execs attributed the growth in revenue and profit to demand for Google Cloud Platform's core products, plus AI Infrastructure, and Generative AI Solutions. CEO Sundar Pichai said Google Cloud doubled the number of deals valued at over $250 million year over year, and in the first half of 2025 signed as many million-dollar deals as it did in all of 2024. Customer numbers rose nearly 28 percent quarter over quarter. "Our churn rates are very low. And we are much more efficient in the investments needed to grow those lines of businesses," he said. "So you are seeing all that play out in our margin trajectory, particularly if you look at it ... sequentially over the past few years." He also warned, "Supply constraints and elevated capex signal persistent infrastructure bottlenecks." Alphabet's going to spend more anyway. CFO Anat Ashkenazi said demand for Google services is so high the company revised its capital expenditure plans for this financial year from $75 billion to $85 billion. He also revealed that capex reached $22.4 billion in Q2 and "The vast majority ... was invested in technical infrastructure, with approximately two-thirds of investments in servers and one-third in data centers and networking equipment." Do the math: that's around $14 billion on servers in a single quarter. Aren't you glad you don't have to rack them all? People at Alphabet are probably doing so right now, because Ashkenazi said the company will bring more datacenters online "towards the back end of the year." Ever since generative AI came along and gave netizens a new way to seek information online, many have predicted Google could suffer. Such predictions appear to have been incorrect. "We see AI powering an expansion in how people are searching for and accessing information, unlocking completely new kinds of questions you can ask Google," Pichai told investors. "Overall queries and commercial queries on search continue to grow year over year, and our new AI experiences significantly contributed to this increase in usage. We are also seeing that our AI features cause users to search more as they learn that search can meet more of their needs." "That's especially true for younger users," the CEO said. "We know how popular AI overviews are because they are now driving over ten percent more queries globally for the types of queries that show them, and this growth continues to increase over time." Alphabet's balance sheet backs up those assertions, as revenue from search jumped almost 12 percent to reach $54.2 billion. YouTube advertising revenues increased 13 percent to $9.8 billion, while combined revenue from subscription platforms and devices grew 20 percent to $11.2 billion. YouTube subs were the big driver there. Alphabet's "Other Bets" segment produced $373 million in revenue, but a $1.2 billion loss. The Waymo robo-taxi business is part of that segment and Pichai praised it for achieving "great momentum." "The Waymo driver has now autonomously driven over one hundred million miles on public roads," he enthused. CFO Anat Ashkenazi said Alphabet is "allocating more resources to businesses like Waymo, where we see opportunities to create additional value." During the Q&A section of the earnings call, Pichai took a question about smart glasses and replied "I think AI will spur a whole new wave of innovation there" and rated the devices "an exciting new emerging category." "But I still expect phones to be at the center of the experience for the next two to three years at least," he added. Alphabet shares popped by a couple of percent in after-hours trading. ®

Google's $85 billion capital spend spurred by cloud, AI demand

Google is going to spend $10 billion more this year than it previously expected due to the growing demand for cloud services, which has created a backlog, executives said Wednesday. As part of its second quarter earnings, the company increased its forecast for capital expenditures in 2025 to $85 billion due to "strong and growing demand for our Cloud products and services" as it continues to expand infrastructure to power more AI services that use its cloud technology. That's up from the $75 billion projection that Google provided in February, which was already above the $58.84 billion that Wall Street expected at the time. The increased forecast comes as demand for cloud services surges across the tech industry as AI services increase in popularity. As a result, companies are doubling down on infrastructure to keep pace with demand and are planning multi‑year buildouts of data centers. In its second quarter earnings, Google reported that cloud revenues increased by 32% to $13.6 billion in the period. The demand is so high for Google's cloud services that it now amounts to a $106 billion backlog, Alphabet finance chief Anat Ashkenazi said during the company's post-earnings conference call. "It's a tight supply environment," she said. The vast majority of Alphabet's capital spend was invested in technical infrastructure during the second quarter, with approximately two-thirds of investments going to servers and one-third in data center and networking equipment, Ashkenazi said. She added that the updated outlook reflects additional investment in servers, the timing of delivery of servers and "an acceleration in the pace of data center construction, primarily to meet Cloud customer demand." Ashkenazi said that despite the company's "improved" pace of getting servers up and running, investors should expect further increase in capital spend in 2026 "due to the demand as well as growth opportunities across the company." She didn't specify what those opportunities are but said the company will provide more details on a future earnings call. "We're increasing capacity with every quarter that goes by," Ashkenazi said. Due to the increased spend, Google will have to record more expenses over time, which will make profits look smaller, she said. "Obviously, we're working hard to bring more capacity online," Ashkenazi said.

Google is betting billions more on its cloud business

Google's cloud computing business is booming, and the tech giant plans to invest billions more into the service for the rest of 2025 after beating analysts' second-quarter estimates on Wednesday. Google Cloud brought in $13.6 billion in second-quarter revenue -- up 32% from last year. Plus, its parent company Alphabet said the cloud service has a backlog worth $106 billion. Due to rising demand, Alphabet said it's committing an extra $10 billion this year to further build out its cloud service. Operating expenses for Google's cloud business totaled $2.8 billion in the second quarter. Wall Street expected second-quarter revenue growth of 26.5% for Google Cloud, Reuters reported. However, the tech giant also shocked analysts by the significant increase to its yearly capital expenditures. "I don't think anyone was expecting a change to that 2025 capex guide," Dave Wagner, portfolio manager at Aptus Capital Advisors, said to Reuters. "Google had an amazing quarter. It was an easy beat, and it was just offset by this $10-billion increase in capex." Google Cloud holds the third-largest market share in the global cloud infrastructure space, behind Amazon Web Services and Microsoft Azure. Its revenue reached $12.3 billion in the first quarter. "Google Cloud appears to have quite significant growth opportunities given 15-20% cloud penetration of enterprise and the potential benefits of AI," Jeffrey Wlodarczak at Pivotal Research Group said Thursday, adding that security risks and "one-off-costs" from converting to the cloud, among other reasons, could "lead to slower adoption than expected." "Cloud had strong growth in revenues, backlog and profitability. Its annual revenue run-rate is now more than $50 billion," Alphabet CEO Sundar Pichai said in a press release. He added, "With this strong and growing demand for our Cloud products and services, we are increasing our investment in capital expenditures in 2025 to approximately $85 billion and are excited by the opportunity ahead." Alphabet's second-quarter capital expenditures totaled $22.4 billion, with the majority of that investment spent on technical infrastructure -- about two-thirds on servers and one-third on data centers and networking equipment, Alphabet and Google SVP and CFO Anat Ashkenazi told investors. Even with Alphabet upping its investment by $10 billion from $75 billion for the rest of this year, Ashkenazi said the company still expects Google Cloud to remain in a "tight demand-supply environment going into 2026." "We are investing more to expand," Pichai said in the call, but noted there is "obviously a time delay" between Alphabet's investment and progress. Ashkenazi noted in the call that the "significant increase" in capital expenditures over the last few years will "continue to put pressure on the P&L, primarily in the form of higher depreciation." He said this quarter depreciation increased $1.3 billion year-over-year to $5 billion, reflecting a growth rate of 35%, and expects the growth rate to continue deprecating in the next quarter. "It's important as you think about Cloud growth not to think about this in a linear fashion, because the quarter-on-quarter growth rates could depend on the timing of capacity delivery and when that comes online, so that could move a little bit from quarter to quarter," Ashkenazi said. Alphabet's stock closed Wednesday at $191.51 and opened at $197.89 Thursday before dropping to a closing price of $193.20.