Google Revenue Soars on AI Boom, and Investors Eye Spending Surge

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.

A sharp technology sell-off has exposed a new anxiety on global markets: whether the enormous borrowing behind the artificial-intelligence infrastructure boom can generate sufficient returns as interest rates rise and Chinese competition intensifies.

The artificial-intelligence investment boom has powered technology shares, semiconductor manufacturers and data-centre operators to extraordinary heights. Last week, investors were given a reminder that much of this expansion is being built with borrowed money.

The technology-heavy Nasdaq Composite fell 4.5 per cent over the week ended October 16, its weakest performance since late June. Semiconductor shares suffered an even deeper correction, with the Philadelphia Semiconductor Index losing about 11.4 per cent.

The selling spread quickly through global markets. Micron Technology fell 14.6 per cent over the week, while South Korea’s Samsung Electronics and SK Hynix dropped approximately 18 per cent and 24 per cent respectively.

This was more than a routine bout of profit-taking. Investors were reassessing three interconnected risks: higher interest rates, the rapidly expanding debt burden attached to AI infrastructure and the prospect of stronger competition from Chinese memory-chip manufacturers.

The debt behind the AI build-out

Artificial intelligence requires a physical infrastructure network of enormous scale. Data centres must be built, advanced processors purchased, power supplies secured and cooling systems installed before customers begin generating meaningful revenue from them.

Technology companies are increasingly supplementing their own cash with corporate bonds, syndicated loans, equipment leases, private credit and project-level financing.

JPMorgan describes the emerging funding model as a combination of conventional corporate borrowing and project finance tied to individual data-centre assets. In Australia, the Reserve Bank estimates that syndicated loans accounted for approximately three-quarters of data-centre financing during 2025 and 2026 to date.

The numbers are becoming large enough to affect broader credit markets. The Federal Reserve Bank of Dallas has cited Wall Street estimates suggesting AI-related investment-grade bond issuance could approach US$300 billion in 2026 alone.

That borrowing is not automatically problematic. Debt can be an efficient way to finance long-lived infrastructure when future revenue is sufficiently predictable. The concern is that AI technology, customer demand and computing economics are changing much faster than the repayment schedules attached to the assets.

A data centre financed today may carry debt for years. Investors must therefore make assumptions about future utilisation rates, electricity prices, chip performance, customer concentration and the amount businesses will ultimately pay for AI computing.

When interest rates rise, those assumptions become less forgiving.

Inflation changes the calculation

September’s US inflation data intensified the pressure. Consumer prices increased 3.7 per cent over the year, ahead of market expectations and up from 3.4 per cent in August.

The hotter reading reduced confidence that interest rates would fall quickly and pushed bond yields higher. That matters particularly for companies whose valuations depend on profits expected well into the future, as well as highly leveraged infrastructure operators that may need to refinance.

CoreWeave has emerged as a closely watched test case. The specialist cloud-computing company has accumulated substantial debt and lease obligations to build AI capacity, while relying on a concentrated group of large technology customers.

Its shares fell sharply during the sell-off, while the cost of insuring its debt against default climbed. CoreWeave has argued that its contracted backlog more than covers its obligations and that financial markets do not always understand its business model. Nevertheless, its securities have become a proxy for investor confidence in debt-funded AI infrastructure.

Oracle, another major investor in AI computing capacity, fell 8.8 per cent in Friday trading, while CoreWeave dropped 15.5 per cent.

The question is shifting from how much AI infrastructure can be built to how profitably it can be operated.

China adds another source of pressure

Interest rates were not the only catalyst. Reports of advances by Chinese memory-chip producer ChangXin Memory Technologies raised concerns that lower-cost Chinese products could increase competition across the global semiconductor industry.

Memory chips are essential to AI systems, but the industry is historically cyclical. Periods of tight supply and high pricing can encourage rapid investment, eventually producing oversupply and falling margins.

The prospect of a well-funded Chinese competitor expanding its technological capabilities unsettled investors in Samsung, SK Hynix and Micron. It also demonstrated that AI-related demand does not insulate chipmakers from conventional competitive pressures.

That combination—slower rate cuts, more expensive financing and potentially cheaper supply—challenged the assumption that every company exposed to AI would enjoy continually expanding margins.

A reset rather than the end of the boom

The sell-off does not establish that the AI boom is ending. Demand for computing power remains strong, the largest technology companies continue to generate formidable cash flows and many infrastructure projects are backed by long-term customer contracts.

What has changed is the market’s willingness to overlook the price and financing structure of that growth.

The most resilient companies are likely to be those able to fund investment from operating cash flow, secure long-duration customers and demonstrate that new capacity will earn returns comfortably above its financing costs.

More speculative operators may face greater scrutiny, particularly where debt is expensive, customers are concentrated or expected revenue depends on demand that has not yet materialised.

For Australian investors, the lesson extends beyond US technology shares. Local data-centre operators, infrastructure funds, electricity suppliers and property groups are increasingly exposed to the same investment cycle.

Artificial intelligence may remain one of the defining growth themes of the decade. But last week’s correction showed that enthusiasm for the technology does not eliminate financial discipline.

The next stage of the AI boom will be judged not only by computing power, model performance or demand for chips, but by something more traditional: whether the assets being financed can generate enough cash to repay the money borrowed to build them.

Fact box

Nasdaq Composite: Down 4.5 per cent for the week ended October 16, 2026

Philadelphia Semiconductor Index: Down approximately 11.4 per cent

Micron Technology: Down approximately 14.6 per cent

Samsung Electronics: Down approximately 18 per cent

SK Hynix: Down approximately 24 per cent

US September inflation: 3.7 per cent annually

Estimated 2026 AI-related investment-grade issuance: Approximately US$300 billion