Alphabet outlines $85B 2025 CapEx plan as AI and cloud demand drive expansion

Earnings Call Insights: Alphabet Inc. (GOOG) Q2 2025

Management View

Sundar Pichai, CEO, highlighted a “standout quarter” with “robust growth across the company,” attributing momentum to AI’s expanding impact: “This quarter, Search delivered double-digit revenue growth. Our new Search features continue to perform well. AI Mode has launched in the U.S. and India and is going well, while AI Overviews now has over 2 billion monthly users across more than 200 countries and territories and 40 languages.”
Pichai noted “Cloud had another great quarter of strong growth in revenues, backlog and profitability. Its annual revenue run rate is now more than $50 billion.” He cited demand for Alphabet’s “comprehensive AI product portfolio,” and emphasized the company’s investments in AI infrastructure.
Pichai underscored the company’s advances in AI: “We continue to expand our Gemini 2.5 family of hybrid reasoning models, which provide industry-leading performance in nearly every major benchmark.” He also referenced strong user engagement with the Gemini app: “The Gemini app now has more than 450 million monthly active users, and we continue to see strong growth in engagement with daily requests growing over 50% from Q1.”
Philipp Schindler, Chief Business Officer, reported, “Google Services revenues were $83 billion for the quarter, up 12% year-on-year, driven by strong growth in Search and YouTube, partially offset by year-on-year decline in network revenues.” He added, “The 12% increase in Search and other revenues was led by growth across all verticals with the largest contributions from retail and financial services.”
Anat Ashkenazi, CFO, stated, “Consolidated revenue of $96.4 billion increased by 14% or 13% in constant currency. Search and YouTube advertising, subscription platforms and devices and Google Cloud each had double-digit revenue growth this quarter reflecting strong momentum across the business.”
Ashkenazi explained, “Net income increased 19% to $28.2 billion, and earnings per share increased 22% to $2.31. We generated free cash flow of $5.3 billion in the second quarter and $66.7 billion for the trailing 12 months.”

Outlook

Ashkenazi noted, “At current spot rates, we could see a tailwind to our revenue in Q3. However, volatility in exchange rates could affect the impact of FX on Q3 revenue.”
Regarding CapEx, Ashkenazi updated, “We now expect to invest approximately $85 billion in CapEx in 2025, up from a previous estimate of $75 billion. Our 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.”
For 2026, Ashkenazi stated, “We expect a further increase in CapEx due to the demand we’re seeing from customers as well as growth opportunities across the company. We will provide more details on the 2026 CapEx outlook on a future earnings call.”

Financial Results

Alphabet reported “consolidated revenue of $96.4 billion,” a 14% increase year-over-year, and “net income increased 19% to $28.2 billion.” Operating income rose to $31.3 billion, with an operating margin of 32.4%.
Google Services revenues reached $82.5 billion, up 12%. Google Search and other revenues were $54.2 billion, while YouTube advertising revenues were $9.8 billion, both reflecting double-digit growth.
Google Cloud revenue climbed 32% to $13.6 billion, and operating income for the segment increased to $2.8 billion, with margin rising to 20.7%.
Total cost of revenue was $39 billion, up 10%. Total operating expenses increased 20% to $26.1 billion, with a $1.4 billion charge related to legal settlements noted as a major driver.
CapEx for the quarter was $22.4 billion, with about two-thirds invested in servers and one-third in data centers and networking equipment.

Q&A

Eric Sheridan, Goldman Sachs: Asked about implications of changed consumer behavior for monetization and AI-driven product evolution. Pichai responded that people are “excited about AI” and adapting well, with new experiences like multimodal search being adopted quickly. Schindler added, “YouTube subscriptions are increasingly important for YouTube. We’ll definitely continue our long-term focus here. We had strong growth across the YouTube subscription products.”
Doug Anmuth, JPMorgan: Queried about CapEx increases amid tight compute supply. Pichai said, “It’s a tight supply environment. And we are investing more to expand, but there is obviously a time delay between this additional investment will play out in future years.” Schindler clarified, “pay clicks were up 4% year-on-year,” noting factors affect these metrics and discouraging drawing broad conclusions solely from pay click and CPC data.
Brian Nowak, Morgan Stanley: Inquired about agentic search and internal efficiency gains from GenAI. Pichai described progress in agentic capabilities, noting current hurdles with reliability, latency, and cost, but expects “2026 to be the year in which people kind of use agentic experiences more broadly.”
Michael Nathanson, MoffettNathanson: Asked about device innovation and differences between AI Mode and Gemini app usage. Pichai expects phones to remain central for the next 2-3 years, with emerging categories like glasses showing promise, and emphasized differentiated use cases for AI Mode vs. Gemini app.
Mark Shmulik, Bernstein: Asked about AI talent and cost structure. Pichai said, “We have an extraordinary both breadth and depth of the talent…and both our retention metrics as well as the new talent coming in and both are healthy.” Ashkenazi emphasized ongoing investment in talent balanced by efficiency efforts.
Ross Sandler, Barclays: Raised concerns about Search click-through rates with new AI formats. Schindler stated, “We see monetization at approximately the same rate, which gives us actually a really strong base on which we can then innovate.”
Additional questions covered ad environment, cloud supply constraints, subscription growth, and CapEx ROI.

Sentiment Analysis

Analyst tone was probing and occasionally skeptical, especially around monetization, CapEx, and AI-driven changes in user behavior. Questions about click-through rates, cloud supply, and AI business models reflected cautious optimism and a desire for clarity on risk factors.
Management maintained a confident and constructive tone, emphasizing strong momentum, robust growth, and strategic investments. Pichai and Ashkenazi both used phrases signaling confidence: “We are excited about the opportunities ahead,” and “We are planning ahead, and we are investing.”
Compared to the previous quarter, both analyst and management sentiment remained relatively consistent, though analysts pressed more on CapEx escalation, supply constraints, and monetization of new AI experiences.

Quarter-over-Quarter Comparison

Guidance for CapEx increased from $75 billion to approximately $85 billion for 2025, with further increases expected in 2026, reflecting accelerating investment in AI infrastructure and data centers.
Google Cloud revenue growth accelerated to 32% year-over-year, and operating margin for Cloud expanded further.
AI user engagement and product usage, such as Gemini app active users and AI Overviews, grew significantly compared to Q1.
Analysts’ focus shifted more to supply constraints, ROI on CapEx, and monetization of new AI-driven experiences.
Management’s tone remained confident, but with heightened emphasis on investment discipline and efficiency to offset growing infrastructure costs.

Risks and Concerns

Ashkenazi cited FX volatility, ongoing legal expenses, and higher depreciation due to increased CapEx as key considerations impacting results.
Supply constraints for AI compute and data center capacity may continue into 2026, potentially introducing variability in Cloud revenue growth.
Analysts raised questions regarding the ROI on escalating CapEx, effectiveness of monetizing new AI products, and competitive dynamics in AI talent retention.
Management outlined strategies to offset expense growth via productivity and efficiency improvements, as well as leveraging AI tools internally.

Final Takeaway

Alphabet’s Q2 2025 earnings call underscored the company’s robust double-digit growth across Search, YouTube, subscriptions, and Cloud, powered by rapid AI adoption and product innovation. Management emphasized a substantial $85 billion CapEx plan for 2025 to meet escalating demand for AI and cloud services, with further increases expected next year. The company continues to highlight strong user engagement with new AI features, expanding monetization opportunities, and a disciplined approach to investing in infrastructure while managing rising costs. Ongoing focus on operational efficiency and talent retention aims to sustain Alphabet’s momentum as it scales its AI-driven ecosystem.

Read the full Earnings Call Transcript