Google Earnings Beat Estimates, Capex Jumps

Google Q2 Earnings Beat Expectations Across the Board

Alphabet reported revenue of $96.43 billion for the quarter ended on the 30th of June, exceeding expectations of $94 billion. Earnings per share came in at $2.31, ahead of the projected $2.18. The results reflect a 14% year-over-year increase in revenue, driven by strong performances in core advertising and cloud services.

Google's advertising business, which accounts for roughly three-quarters of the company’s total revenue rose 10.4% to $71.34 billion. Search contributed $54.19 billion, while YouTube advertising revenue reached $9.8 billion, also beating forecasts. The company’s net income increased nearly 20% to $28.2 billion, a strong sign of ongoing operating strength.

OpenAI Partnership Highlights Google Cloud’s Rising Edge in AI Services

The real momentum came from Google Cloud, which saw revenues soar 32% year-over-year to $13.62 billion. That outpaced the 26.5% increase analysts were expecting and highlights how integral cloud services have become to Google’s long-term growth. Google Cloud also gained a high-profile customer - OpenAI, the developer of ChatGPT, which recently selected Google Cloud to help power its operations despite being closely aligned with Microsoft Azure.

The company’s AI-centric offerings such as custom-built TPU chips and infrastructure scale are attracting enterprise clients at a growing rate. The segment's customer count jumped 28% quarter-over-quarter, reinforcing Google’s competitive position in the intensifying AI infrastructure race.

$85 Billion Capex Plan Signals Aggressive AI Bet

Alphabet surprised investors by raising its 2025 capital expenditures forecast to $85 billion, a $10 billion increase from its earlier guidance in February. This updated figure was already far above Wall Street’s initial $58.84 billion expectation, reflecting Alphabet’s urgency to scale its AI infrastructure in response to unprecedented demand.

Chief Financial Officer Anat Ashkenazi noted that the majority of capital spending in Q2 was allocated to technical infrastructure, two-thirds to servers and one-third to data centre and networking equipment. The increased outlook reflects not only a faster pace of server deployment but also a multi-year acceleration in data centre construction. According to Ashkenazi, capacity is being added quarter by quarter, but demand continues to exceed supply.

Looking ahead, the company expects further increases in capital spending in 2026, though specific investment categories remain under wraps. While the long-term strategic rationale is clear, the near-term impact on profitability remains a concern. Ashkenazi acknowledged that higher spending would increase expenses and temporarily reduce margins.

AI Engagement Ramps Up with Gemini and AI Overviews

Alphabet is also making strides on the consumer-facing AI front. Its AI search product, AI Overviews, now reaches more than two billion monthly users across over 200 countries and territories. The company’s Gemini chatbot app has grown to more than 450 million monthly active users. Products like AI Mode, now with 100 million monthly users, are helping Google maintain its leadership in search, even as competition from ChatGPT and other tools intensifies.

Regulatory Risks and Legal Costs Add Pressure

Despite the earnings beat, Alphabet is not without headwinds. Alphabet now faces the threat of structural remedies following a U.S. District Court ruling that it violated antitrust laws in online search. Judge Amit Mehta is expected to issue a ruling on potential penalties, which could include bans on exclusivity deals with Apple and even a forced divestiture of the Chrome browser. Such outcomes would strike at the core of Google’s search dominance and could materially affect future revenue.

Source: TradingView

Outlook and Investor Reaction

Shares of Alphabet rebounded slightly after the earnings report amid signs of sustained cloud momentum and long-term growth prospects. Looking ahead, expectations for revenue and profitability remain robust as the company continues to invest heavily in cloud, AI, and digital services. These catalysts are likely to support the share price and a re-test of previous high of $208.70 could occur in the next few months. Over the long-term, levels to $230 appear easily achievable.

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