Alphabet’s latest earnings reinforces the message the company has been trying to convey to the market: investment in artificial intelligence is no longer just a long-term bet and is beginning to translate into real growth. The better-than-expected performance in the cloud shows that the company is ready for this new technological wave.
Alphabet bets big on the cloud and sees accelerated returns with AI
Alphabet shares GOOGL.O rose more than 3% in early trading on Thursday as the Google parent’s earnings underscored a key message to investors: AI spending is climbing, but so are the returns. The tech giant has raised its 2025 capital spending forecast by $10 billion to $85 billion and signaled even higher outlay next year, stepping up efforts to meet soaring cloud demand and stay competitive in Silicon Valley’s escalating AI race.
Its cloud-computing unit delivered an almost 32% jump in second-quarter revenue, surpassing expectations, as investments in in-house chips and the Gemini AI model began to pay off. The results bode well for rivals Microsoft MSFT.O and Amazon.com AMZN.O, both of which have been stepping up data center investments and operate larger cloud businesses. “Google came back fighting this quarter,” said Bernstein analyst Mark Shmulik. “Investors have long been clamoring for Google to get more ‘aggressive’ in the AI race,” he added.
An early AI pioneer with its invention of the Transformer model – the foundation of most modern generative AI – Google appeared to fall behind OpenAI and Microsoft last year. But it has rebounded this year, with AI Mode reaching 100 million monthly users just two months into its wider rollout, and Gemini surpassing 450 million monthly users. Its ad business, which accounts for about three-quarters of its sales, also continues to fare well in the face of economic uncertainty wrought by tariffs and geopolitical tensions.
Solid results rekindle market confidence, but concerns persist
Although revenue has surged, Alphabet’s stock still lags its main competitors. Part of this discrepancy can be justified due to investor caution in the face of increased spending and legal uncertainty. Yet, the wave of upgraded price targets from banks signals optimism — assuming the company navigates its investment risks effectively.
Revenue in the business rose a better-than-expected 10.4%, a positive sign for rivals such as Meta META.O and Snap SNAP.N that rely on digital ads for most of their revenue. At least 27brokerages raised their price targets on Google stock after the results, taking the median target to $220 from $200 a month earlier.
Still, some analysts warned the higher spending may draw fresh scrutiny from investors, who have largely stayed on the sidelines this year. Alphabet shares are up just 0.5% in 2025, trailing Microsoft’s 20% increase and a 22% rise in Meta stock, also held back by regulatory battles that are looking to break its illegal monopoly in the search and the ad-tech markets.
AI full potential faces strategic and legal challenges
Besides all of that, Alphabet still faces questions about the impact of this transformation on its traditional business model. The possibility that AI tools could reduce users’ reliance on search engines raises concerns about the company’s main source of revenue. Furthermore, ongoing legal disputes increase the unpredictability of the scenario, requiring the company to carefully manage the market preservation.
Uncertainties dampen short-term gains, but fundamentals remain solid
Even with modest year-to-date share price appreciation, Alphabet’s operational performance and growing engagement with its AI-based products demonstrate that the company is building solid foundations for the future. The challenge now is to balance growth and prudence, demonstrating to the market that increased investment will be offset by sustainable gains in scale and revenue.