Alphabet highlighted the significant demand for its cloud computing services as it raised its capital spending plans for the year to approximately $85 billion and forecasted an additional increase for next year. The search giant notably surpassed Wall Street estimates for quarterly revenue and profit, driven by new AI features and a stable digital advertising market. Revenue growth was fueled by Google Cloud’s sales, which soared nearly 32 percent, well above the anticipated 26.5 percent increase.
“Google Cloud was the standout performer this quarter. Revenue climbed to $13.6 billion, up 32 percent year-on-year and ahead of the $13.1 billion consensus. The number of Cloud deals over $250 million doubled, and Alphabet signed as many as $1 billion+ deals in the first half of 2025 as it did in all of 2024. Operating income hit $2.83 billion, further establishing Cloud as a profitable growth driver,” noted Charu Chanana, chief investment strategist at Saxo Bank.
“With this strong and growing demand for our Cloud products and services, we are increasing our investment in capital expenditures,” CEO Sundar Pichai stated in an earnings release.
“Alphabet’s second-quarter earnings delivered robust results across key business segments, but also brought a new wave of scrutiny around the cost of building its AI future. Investors got what they wanted in terms of top- and bottom-line beats, but the stock’s reaction was tempered by a steep rise in capital expenditures, which reignited investor concerns about the cost—and timeline—of monetizing AI,” said Chanana.
Shares rally after earnings dip
Shares of the company, which have risen more than 18 percent since its previous earnings report in April, initially dipped in extended trading following the report but rallied as executives shared insights about strong cloud demand during a call with analysts.
“The capex surprise initially reversed a post-earnings rally in Alphabet shares after hours, showing that investors—even those bullish on AI—are beginning to scrutinize the timelines and return on investment. While Alphabet reported operating margins of 32 percent, broadly in line with last year, investors were reminded that even a strong profit engine can face pressure if investments don’t pay off soon,” explained Chanana.
However, investors were caught off guard by the planned increase in capital spending. Google had previously pledged about $75 billion in capital spending this year, part of the over $320 billion that Big Tech is anticipated to invest in building AI capabilities. The surge of artificial intelligence technologies has driven up demand for cloud computing services. Google Cloud continues to trail Amazon’s AWS and Microsoft’s Azure in total sales but is striving to gain ground by promoting its AI offerings, including its proprietary TPU chips that compete with Nvidia’s GPUs.
