Newsletter
Google's parent company, Alphabet, reported better-than-expected Q2 earnings, driven by strong AI demand. Revenue grew 24% YoY, while its cloud business surged 82%, fuelled by growing demand for AI infrastructure and AI-powered solutions.
By the numbers:
- Adjusted earnings per share: $2.85 vs. $2.89 expected (LSEG)
- Revenue: $119.8 billion vs. $116.93 billion expected (LSEG)
Alphabet also raised its capital expenditure guidance for the year to $195-205 billion, up from the $180-190 billion forecast provided last quarter. The company is continuing to pour billions into AI infrastructure to keep up with soaring demand.
According to the company, Search revenue grew 17%, driven by the adoption of AI Overviews and AI Mode, while YouTube Ads revenue increased 13%.
Another major boost came from Alphabet's ‘Other Income’ segment, which includes gains from its investments in companies like Anthropic and SpaceX. This contributed $99 billion during the quarter.
However, the company also reported its first-ever negative free cash flow, reflecting record spending on AI infrastructure.
Cloud demand continues to accelerate. Alphabet's cloud backlog grew to $514 billion, while nearly 90% of the Fortune 100 now use Gemini Enterprise.
Gemini is also powering all 13 Google products with more than 1 billion users, including five products with over 3 billion users each.
It is heavily invested in AI startup Anthropic, owning roughly a 14% stake as of March, according to filings cited by The New York Times.
Anthropic was valued at nearly $1 trillion following a $65 billion funding round in May, with some investors believing it could already be worth $1.2 trillion.
One interesting tidbit: Sundar Pichai said Search usage hit an all-time high during this year's FIFA World Cup, highlighting how major global events continue to drive engagement across Google's platforms.
Why are investors worried: despite the strong results, investors remain focused on Alphabet's sharply higher capital expenditure plans and the pace of its AI spending. The key question is whether the company can generate enough returns to justify these massive investments.
