Google Cloud's "Counterattack"

Driven by the wave of artificial intelligence, Google Cloud is transforming from a long-term loss-making division of Alphabet into one of its fastest-growing engines. This profound shift not only reshapes the internal power dynamics of Alphabet but also signals that the global cloud computing market competition is entering a new phase.

According to the financial report released by Alphabet on Wednesday, its cloud business saw a 34% year-on-year revenue growth in the third quarter, exceeding $15 billion. This strong growth is primarily attributed to the robust demand for artificial intelligence infrastructure and services, including the demand for Google's self-developed Gemini model. This performance is challenging YouTube and is expected to become Alphabet's second-largest source of revenue after search advertising.

However, this turnaround comes with massive investments. Alphabet has raised its capital expenditure expectations twice this year due to the demand for cloud infrastructure, shocking Wall Street, with the latest estimate reaching as high as $91 billion to $93 billion. This indicates that Alphabet is willing to pay a high price to secure a foothold in a market dominated by Amazon and Microsoft.

The key figure behind this transformation is Thomas Kurian, who joined Google Cloud in 2018. According to Synergy Research Group data, under his leadership, Google Cloud's market share has increased from 7% to 13% by 2025, backed by a series of profound strategic, cultural, and operational changes.

Strategic Shift and "Non-Google" Culture

Before Kurian's arrival, Google Cloud struggled to attract enterprise customers. A former employee, Josh Gwyther, recalled that when the cloud team sought help from the advertising department, they were often told to "get lost, kid." Kurian's arrival completely changed this situation. The former Oracle executive brought financial discipline and a customer-centric sales model to Google's "loose, bottom-up culture," which some employees referred to as a "non-Google" culture.

To cut costs, Kurian opened new offices in relatively low-rent areas such as North Carolina and Poland and re-evaluated internal service contracts. At the same time, he instructed the sales team to shift their focus from order volume to revenue and changed the sales strategy from regional divisions to industry divisions to enhance professionalism. Matt Renner, President of Global Revenue at Google Cloud, stated, "The advertising business is developing very healthily, but its growth rate will not be as fast as ours."

This series of changes has yielded significant results. Eric Sheridan, Managing Director at Goldman Sachs, commented, "We believe these three major cloud services are roughly evenly matched in competition. This is a stark contrast to Google Cloud's competitive position two or three years ago."

Open Chips and Collaborating with "Enemies"

One of the key weapons in this turnaround is Google's self-developed artificial intelligence chip (TPU). In the past, most TPUs were used internally. In 2022, Kurian successfully persuaded the company to move the team responsible for selling TPUs from the core engineering department to Google Cloud. According to two insiders, this move significantly increased the allocation of TPUs to Google Cloud, giving it stronger bargaining power in attracting customers Under this strategy, Google Cloud has begun offering its powerful computing power to external companies, including competitors. Kurian stated, "We are the only hyperscale data center operator that has both self-developed chips and self-developed models." Google Cloud proactively approached the AI startup Anthropic, persuading it to test TPU as an alternative to NVIDIA's GPU.

This collaboration ultimately led to a blockbuster deal worth billions of dollars. In October 2024, Anthropic expanded its agreement with Google to use up to 1 million TPUs. Dan Rosenthal, who is responsible for this collaboration, stated that the demand for chips "has made us more flexible." In addition to Anthropic, other AI developers, including Apple and Safe Superintelligence, have also adopted Alphabet's TPU.

The Costly Path to Catch Up

The rise of Google Cloud is changing the power dynamics within Alphabet. According to Reuters, citing current and former executives, Kurian has gained greater influence in the company's weekly "leadership meetings." Alphabet CEO Sundar Pichai also stated, "Thomas (Kurian) has been vocal in ensuring we focus on enterprise customers."

However, the path to catching up is costly. After experiencing continuous losses from 2018 to 2022, Google Cloud only achieved profitability for the first time in 2023. To meet the enormous computing power demands brought by AI, Alphabet is making unprecedented capital investments. After raising the company's 2025 capital expenditure forecast by $10 billion to $85 billion in July, Pichai this week increased it again to between $91 billion and $93 billion, hinting that spending in 2026 could be even higher.

In the face of external concerns about an AI bubble, Pichai told Reuters that he expects Google Cloud's business to have "strong resilience" to withstand short-term market adjustments. He emphasized, "From our perspective, we have been in the AI field for ten years, and we will continue to work on this for the next ten years."