Cloud business surged by 32%! Google splurges $85 billion to boost AI infrastructure, forecasting that spending will increase in 2026

According to the Zhitong Finance APP, in the earnings report released on Wednesday Eastern Time, Google (GOOGL.US) announced an increase in its annual capital expenditure plan to approximately $85 billion and forecasted continued investment increases next year, stating that this decision is driven by strong demand for its cloud computing services. The search giant exceeded Wall Street expectations for both quarterly revenue and profit, thanks to new artificial intelligence (AI) features and a stable digital advertising market.

For the second quarter ending June 30, Google's total revenue reached $96.43 billion, surpassing analysts' average expectation of about $94 billion; earnings per share were $2.31, also higher than the expected $2.18.

Among them, Google Cloud's sales surged nearly 32% year-on-year, far exceeding the growth expectation of 26.5%, becoming the main engine driving revenue growth. "In response to the sustained strong demand for cloud products and services, we are increasing our capital expenditure," emphasized CEO Sundar Pichai in the earnings statement.

Although the stock price initially fell after the earnings report was released, it quickly rebounded after details of strong demand in the cloud business were disclosed during the executive conference call. The company's stock price has risen over 18% since the release of the previous quarter's earnings report in April.

However, the significant increase in capital expenditure still surprised the market.

Dave Wagner, a portfolio manager at Aptus Capital Advisors, stated, "I think no one expected the capital expenditure guidance for 2025 to be adjusted. Google performed remarkably this quarter, easily surpassing expectations, but the $10 billion increase in capital expenditure offset this joy."

Forrester analyst Nikhil Lai believes, "Faced with competitive pressure from OpenAI, Google has no choice but to significantly increase its investment in AI infrastructure and applications."

CFO Anat Ashkenazi revealed during the conference call that, given market demand and growth opportunities, capital expenditure will further expand in 2026. She added that although the pace of server deployment has accelerated, demand for cloud services continues to exceed supply capacity.

Previously, Google committed to approximately $75 billion in capital expenditure this year, a figure that was already above Wall Street's expectation of $58.84 billion at the time, but this is only part of the more than $320 billion that the tech giant is expected to invest in building AI capabilities.

Cloud Business Growth

The rise of AI technology has driven a surge in demand for cloud computing services.

Although Google Cloud still lags behind Amazon (AMZN.US) AWS and Microsoft (MSFT.US) Azure in total sales, it is striving to catch up by promoting AI solutions, including its self-developed TPU chips (competing with NVIDIA (NVDA.US) GPUs) Pichai revealed that the number of customers in this business segment increased by 28% quarter-on-quarter.

He stated, "The comprehensiveness of our AI product portfolio, the breadth of our service offerings, and the provision of GPU and TPU-based models for customers have all significantly driven demand growth."

In June of this year, reports indicated that ChatGPT developer OpenAI had included Google Cloud in its list of cloud computing providers, marking a significant victory for Google—this unexpected collaboration with a direct competitor in the AI field also signifies OpenAI's latest effort to reduce its reliance on major supporter Microsoft. However, Jesse Cohen, a senior analyst at Investing.com, pointed out that the surge in capital expenditures has raised market concerns about Google's earnings pace and short-term profit impacts.

Faced with fierce competition from Chinese rivals and investor dissatisfaction with delayed returns, Google, along with other tech giants, continues to invest heavily in AI, claiming it is a necessary measure to drive growth and product upgrades.

AI Competition

In the search business, new features such as AI Overviews and AI Models are helping Google enhance user engagement and respond to the competition from popular chatbots like ChatGPT.

Pichai revealed that just two months after the AI Models were announced for full rollout at the annual developer conference, monthly active users have surpassed 100 million; meanwhile, Google's self-developed ChatGPT competitor Gemini has exceeded 450 million monthly users. As Google's flagship AI product, the Gemini model is rapidly being integrated across the entire product line and pushed to enterprise customers. Although the new version released at the beginning of the year received praise from AI experts, most evaluations indicate that its user adoption still lags behind OpenAI's ChatGPT.

Data shows that the advertising business, which accounts for three-quarters of the company's total revenue, saw a 10.4% revenue increase in the second quarter to $71.34 billion, exceeding the expected $69.47 billion.

Dan Morgan, senior portfolio manager at Synovus Trust, stated, "This is expected to alleviate concerns in the investment community—where there has been ongoing worry that products like OpenAI/ChatGPT could erode Google's search query growth."

In the battle for AI talent, Google is also facing intense competition. Meta (META.US) has offered exorbitant salaries to attract researchers from superintelligent labs, driving up talent costs across Silicon Valley. Earlier this month, Google spent approximately $2.4 billion to acquire the core team and technology licensing of AI programming startup Windsurf. Ashkenazi stated that Google will "ensure reasonable investments to gather the industry's top talent."

Additionally, Google's core business faces the risk of being split up—federal courts have ruled that it constitutes illegal monopoly in the search and certain advertising technology sectors. Although Google has stated it will appeal, presiding judge Amit Mehta is expected to issue specific measures to restore competition in search engines next month In other business aspects, the video platform YouTube's advertising revenue for this quarter reached $9.8 billion, surpassing analysts' expectations of $9.56 billion. With its dominant position in the living room streaming space and significant investments in podcasting, this platform, which primarily relies on advertising for revenue, continues to perform impressively.

The innovative business segment "Other Bets," which includes the autonomous driving project Waymo, generated $373 million in revenue this quarter, falling short of the expected $429.1 million. Waymo expanded its service area in Austin by more than double this month and announced the launch of data collection in New York City to obtain testing permits, but its commercialization process still seems to fall short of investor expectations. Meanwhile, other innovative business units are facing pressure to spin off and operate independently