Google Revenue Soars on AI Boom, and Investors Eye Spending Surge
Search giant is spending tens of billions of dollars on infusing its products with artificial-intelligence capabilities.
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Google’s parent company reported a 14% jump in year-over-year revenue, driven by growth in its cloud and search divisions that was tempered by heavy spending on artificial intelligence.
The parent company, Alphabet , had record sales of $96.4 billion in the second quarter but also said capital expenditure expectations for the year would increase by 13% to about $85 billion. That compares with $52.5 billion in 2024.
Alphabet’s shares rose by more than 1% in after-market trading.
Google Chief Executive Sundar Pichai and other tech executives have poured tens of billions of dollars into AI development over the past few years as part of the broader AI boom . Much of that money has gone to build new data centres to develop and run AI models.
Google’s results were the first in a series of quarterly tech earnings, with Microsoft, Apple, Amazon and Meta Platforms reporting next week. Investors are keeping a close watch on spending levels at most of the biggest companies, which have ballooned as they seek to stay ahead in an escalating AI arms race.
Google’s results are unique in that its cloud division, which sells computing power in data centres, is a beneficiary of the AI boom, while its search business faces threats from users who are migrating toward AI products such as OpenAI’s ChatGPT.
Other areas of the company are spending at a fast clip to bring AI tools into its popular products like search and YouTube.
The cloud unit brought in $13.6 billion in second-quarter revenue. That was up 32% from the previous year, compared with 28% in the first quarter.
Alphabet reported total ad sales of $71.3 billion in the second quarter, an increase of 10.4% from the same period a year earlier. Google’s search division, which is core to the advertising business, grew 11.7%.
MoffettNathanson analyst Michael Nathanson said Google executives helped to allay shareholder concerns about the future of its search business, even if traffic volume declines.
“What people worry about is just the math around search,” he said. “Isn’t AI going to be a negative to search? And they went out of the way many times on the call to say, ‘That’s not what we’re seeing.’”
Google has for years been working to cut costs to help fund AI spending. The company at several points this year extended voluntary buyout offers to employees in multiple divisions.
To get ahead in the AI race, Google has been improving the capabilities of its own AI model and chatbot, known as Gemini, and adding AI features to many of its products. In May, it overhauled its classic search engine with the U.S. introduction of “AI Mode,” which answers search queries in a chatbot-style conversation with fewer links.
Investors have expressed concern about the potential outcome of an antitrust lawsuit targeting Google’s search dominance. A U.S. district judge overseeing the case is expected to rule next month on whether he should impose limits on Google, including putting curbs on how it competes in AI.
The decision will come after a monthslong trial that dealt extensively with just how much new AI players may erode Google’s search monopoly.
The Justice Department, which brought the case against Google in 2020, has proposed forcing the sale of its Chrome browser, preventing Google from being able to pay Apple to be its default search engine and requiring it to share data with competitors.
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Strong earnings reports briefly helped power the Dow Jones Industrial Average above 47000 for the first time, the latest milestone in stocks’ three-year bull run. The blue-chip average pared gains to close below the mark, but still finished at a record.
With sky-high earnings expectations baked into stock prices, Wall Street has been watching this third-quarter reporting period closely. So far, Corporate America has delivered.
Heavyweights Coca-Cola , 3M and General Motors all reported results that exceeded analyst expectations before the opening bell on Tuesday. 3M shares rose 7.7% to a four-year high, leading the Dow.
GM soared 15% to the highest level since its 2010 post-bailout initial public offering after Chief Executive Mary Barra raised guidance and told analysts the automaker can’t make enough full-size SUVs to keep up with demand.
GM said it is making faster-than-expected progress reducing a multibillion-dollar tariff bill—a key topic for investors who are still laser-focused on trade tensions between the U.S. and China.
A solid start to third-quarter earnings has helped buoy investor sentiment, taking stocks back toward record highs after concerns over trade and credit quality bubbled up earlier this month.
As of last Friday, 86% of companies overshot earnings estimates, according to FactSet. Nearly one-fifth of S&P 500 companies are scheduled to give financial updates over the course of this week.
The S&P 500 was little changed Tuesday, while the Nasdaq composite dropped 0.2%. The Dow rose 0.5% to a record closing level of 46924.74. Treasury yields slipped, with the benchmark 10-year yield closing at 3.962%, its lowest reading since October 2024.
“This is a market being driven by strong fundamentals,” said Scott Helfstein , head of investment strategy at asset manager Global X. “Earnings growth is largely driving equity values.”
Elsewhere Tuesday, it was a historically ugly day for precious metals after an epic run-up switched abruptly into reverse. Gold tumbled 5.7%, its worst single-day decline since 2013. Silver fell 7.2%.
Some analysts tied the selloff in safe-haven assets like gold to optimism that the U.S. will reach a new trade deal with China, after the U.S. and Australia signed a rare-earths trade agreement on Monday. The drop followed a remarkable run of gains : Gold remains up 55% on the year and only fell to its lowest level since Oct. 10.
In company news, Warner Bros. Discovery said it is exploring a potential sale of some or all of its media holdings, which include a movie studio, HBO Max and CNN. Its shares rose 11% on the news, which could reshape the entertainment industry.
BMW has unveiled the Neue Klasse in Munich, marking its biggest investment to date and a new era of electrification, digitalisation and sustainable design.
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