Google Surpasses Q2 Expectations and Increases AI Capex to $85 Billion

Alphabet’s latest earnings show dominance in search and cloud, but the company is still facing legal challenges that could cause problems ahead. Alphabet, the parent company of Google, posted stronger-than-expected second-quarter earnings on Wednesday. 

But the real headline was its bold move to boost capital expenditures to $85 billion, a clear signal that Google is doubling down on AI infrastructure amid intense tech industry competition.

Earnings Beat on All Fronts

Alphabet reported adjusted earnings per share (EPS) of $2.31 and revenue excluding traffic acquisition costs (TAC) of $81.2 billion, according to Yahoo Finance. 

Advertising is still the main way the company makes money. It earned $71.3 billion from ads, which is more than what experts expected ($69.6 billion). 

Google’s core Search revenue rose to $54.1 billion, while YouTube ad revenue reached $9.8 billion, both outperforming analyst expectations.

Cloud services also showed strong growth. Google Cloud revenue climbed to $13.6 billion, ahead of the $13.1 billion forecast, pushing its annual run-rate above $50 billion. This puts Google Cloud in a strong competitive position against Amazon Web Services and Microsoft Azure, as noted by Reuters.

AI Push Drives Capex to Record High

Alphabet revised its capital expenditure forecast for the year to $85 billion, up from a previously stated $75 billion. This funding is earmarked for building AI-focused data centers, to improve the custom chip production, and scale Google Cloud infrastructure to meet the demands of AI applications.

CEO Sundar Pichai stressed AI as the central growth engine, saying in a statement,

“AI is positively impacting every part of the business, driving strong momentum.”

He added that new tools such as AI Overviews and AI Mode are gaining traction, while Search and Cloud continue to deliver “strong growth in revenues and profitability.”

The increase in AI-related investments also includes deployments of Nvidia processors and Google’s TPUs, with Alphabet aligning its infrastructure to meet the soaring global demand for generative AI services.

Legal Risks Loom Large

Despite the strong financial performance, Alphabet faces a significant legal challenge. As CNBC reports, Judge Amit Mehta of the US District Court for the District of Columbia recently ruled that Google violated federal antitrust laws by monopolizing online search markets.

Potential remedies could include an order barring exclusive agreements, such as the long-standing deal that sets Google as the default search engine on Apple devices. In a more dramatic scenario, Google could be forced to divest its Chrome browser, which would deal a blow to its core search business.

Investor Confidence Holds

Alphabet stock reacted positively to the earnings beat. After closing slightly lower during regular trading, shares jumped over 2.3% in after-hours trading as investors welcomed the results and the aggressive AI investment strategy.

Analysts view the elevated capital spending as a bold but calculated move.

“Alphabet’s decision to ramp up capex shows that it intends to lead the AI era, not just participate in it,”

said Gene Munster of Deepwater Asset Management in a post-earnings interview.

Outlook

With solid performance across its core business units and unmatched investment in AI infrastructure, Alphabet appears well-positioned for the next wave of technology transformation. However, the looming antitrust decision adds a layer of uncertainty that could reshape key parts of its business model.

For now, the numbers speak for themselves. Google is delivering growth, expanding its dominance in search and cloud, and committing billions to secure a front-row seat in the AI revolution.