Google Boosts Capital Spending by 100 Billion Dollars on Cloud Demand

Google has announced a significant increase in its annual capital expenditure plan to approximately 850 billion dollars, with plans to continue increasing investments next year. This decision is driven by the strong demand for its cloud computing services. The tech giant has reported quarterly revenue and profit that far exceeded expectations, thanks to new AI features and a stable digital advertising market.

For the second quarter ending June 30, Google's total revenue reached 964.3 billion dollars, surpassing analysts' average expectation of approximately 940 billion dollars. The earnings per share were 2.31 dollars, also higher than the expected 2.18 dollars. The cloud business, in particular, saw a year-over-year sales increase of nearly 32%, significantly outperforming the expected 26.5% growth and serving as the primary driver of revenue growth. The CEO emphasized the company's increased capital expenditure in response to the sustained high demand for cloud products and services.

Despite an initial drop in stock price after the earnings report, the stock quickly rebounded following details of the strong demand for cloud services revealed during the management call. The company's stock has risen by more than 18% since the previous quarter's earnings report in April. However, the substantial increase in capital expenditure caught the market by surprise.

One investment portfolio manager noted that no one anticipated the adjustment in the 2025 capital expenditure guidance. While Google's performance for the quarter was impressive, exceeding expectations, the 100 billion dollar increase in capital expenditure offset some of the enthusiasm. Another analyst pointed out that, due to competitive pressure from OpenAI, Google is compelled to significantly increase its investment in AI infrastructure and applications.

The Chief Financial Officer revealed that, given market demand and growth opportunities, capital expenditure is expected to further expand in 2026. Despite accelerating server deployment, the demand for cloud services continues to outpace supply capabilities. Previously, Google had committed to approximately 750 billion dollars in capital expenditure for this year, a figure already higher than the initial market expectation of 588.4 billion dollars. However, this is just a portion of the over 3200 billion dollars that the tech giant plans to invest in building AI capabilities.

The rise of AI technology has driven a surge in demand for cloud computing services. Although Google Cloud trails Amazon's AWS and Microsoft's Azure in total sales, it is aggressively catching up by promoting AI solutions, including its proprietary TPU chips, which compete with NVIDIA's GPUs. The CEO disclosed that the number of customers for this business increased by 28% quarter-over-quarter. The comprehensive AI product portfolio, broad service scope, and provision of GPU and TPU-based models to customers have all contributed to the growth in demand.

In the search business, new AI features such as AI Overviews and AI Snapshot are helping Google enhance user engagement and compete with the popularity of chatbots like ChatGPT. The CEO revealed that AI Snapshot, which was fully rolled out just two months after its announcement at the annual developer conference, has already surpassed 100 million monthly active users. Google's proprietary ChatGPT competitor, Gemini, has over 450 million monthly users. As Google's flagship AI product, the Gemini model is being rapidly integrated into all products and offered to enterprise customers. Although the new version released at the beginning of the year received praise from AI experts, most assessments indicate that its user adoption rate still lags behind OpenAI's ChatGPT.

Data indicates that the advertising business, which accounts for three-quarters of the company's total revenue, saw a 10.4% increase in revenue for the second quarter to 713.4 billion dollars, exceeding the expected 694.7 billion dollars. This is expected to alleviate concerns in the investment community about the potential erosion of Google's search query growth by products like OpenAI/ChatGPT.

In the competition for AI talent, Google is also facing intense pressure. Meta has offered exorbitant salaries to attract researchers from the Superintelligence Lab, driving up talent costs across Silicon Valley. Earlier this month, Google acquired the core team and technology of the AI programming startup Windsurf for approximately 24 billion dollars. The Chief Financial Officer stated that Google will ensure reasonable investment to attract the industry's top talent.

Additionally, Google's core business faces the risk of being split up, as a federal court ruled that it constitutes illegal monopolies in search and certain advertising technologies. While Google has stated that it will appeal, the presiding judge is expected to issue specific measures to restore competition in the search engine market next month.

In other business areas, the video platform YouTube generated 98 billion dollars in advertising revenue for the quarter, surpassing analysts' expectations of 95.6 billion dollars. With its dominant position in living room streaming and significant investment in podcasting, this platform, which primarily relies on advertising for revenue, continues to perform strongly. The innovative business segment, which includes the self-driving project Waymo, generated 3.73 billion dollars in revenue for the quarter, falling short of the expected 4.291 billion dollars. Waymo expanded its service area in Austin by more than a factor of two this month and announced the initiation of data collection in New York City to obtain testing permits. However, its commercialization process appears to have not yet met investor expectations. Meanwhile, other innovative business units are facing pressure to operate independently.