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Google parent Alphabet (GOOG) once again surpassed EPS and revenue expectations in 2Q25, a recurring theme over the past three years, driven by robust performance across all business lines, with the Cloud segment shining particularly brightly. Fueled by a 32% yr/yr surge in Google Cloud revenue to $13.62 bln, up from 28% growth in the prior year’s quarter, GOOG delivered solid overall growth of nearly 14%, easily beating analysts' forecasts. To support this momentum, GOOG raised its FY25 capital expenditure guidance by $10 bln to $85 bln, reflecting aggressive investments in AI infrastructure to meet soaring demand from cloud customers, particularly for generative AI and enterprise solutions.

• The Search business, GOOG’s core revenue engine, continued to demonstrate its dominance, with Search and Other revenue climbing 12% yr/yr to $54.19 bln, accelerating from 9.8% growth in Q1. This upswing was propelled by enhanced user engagement, driven by AI-powered features like AI Overviews and AI Mode, which has reached 100 mln monthly active users in the U.S. and India since its May launch. Additionally, GOOG’s full-stack AI approach, leveraging custom Tensor Processing Units like the seventh-generation Ironwood, optimizes search efficiency and counters competitive pressures from AI-driven chatbots like ChatGPT, reinforcing GOOG’s market leadership despite ongoing antitrust scrutiny.
• YouTube also outperformed, with ad revenue rising 13% to $9.8 bln, surpassing estimates and accelerating from 10.3% growth in Q1. Key drivers include improved monetization of YouTube Shorts, which has gained traction as advertisers increasingly value its short-form content, and robust growth in subscription services like YouTube Music and YouTube TV, which now contribute significantly to the platform’s revenue mix. The focus on AI-enhanced content recommendations and ad formats has further boosted engagement, positioning YouTube as a leader in streaming watchtime and podcasts, with a combined annual revenue run rate alongside Cloud exceeding $110 bln.
• The Google Cloud segment was the standout, delivering 32% revenue growth to $13.62 bln and a remarkable 141% surge in operating income to approximately $3.1 bln, reflecting margins expanding to around 22.7% from 9.4% a year ago. This performance was driven by strong demand for Google Cloud Platform’s (GCP) core infrastructure, AI platforms, and generative AI solutions, with Vertex AI supporting over 200 foundation models, including Gemini 2.5 Pro and Imagen 3, enabling enterprises to integrate multi-model AI efficiently. Strategic partnerships, such as with OpenAI for ChatGPT’s cloud infrastructure, and GOOG’s cost-efficient, in-house TPU hardware provide a competitive edge over rivals reliant on third-party GPUs, while capacity constraints highlight the need for the increased capex to scale data centers and servers.

GOOG's Q2 results underscore its consistent ability to deliver strong, diversified growth, with exceptional momentum in Cloud complemented by resilient Search and YouTube performance. However, the $10 bln hike in FY25 capex guidance to $85 bln has sparked some investor unease, given the scale of AI infrastructure investments and uncertainties in the macroeconomic environment. Despite these concerns, GOOG’s structural AI tailwinds and operational discipline position it well for sustained earnings momentum.