By Kenrick Cai and Akash Sriram
(Reuters) -Strong AI demand helped power Alphabet’s financial results, as both the core advertising and cloud computing businesses of the Google parent beat revenue expectations.
Despite whispers of concerns over a developing AI bubble, the search giant boosted its projected capital expenditures for the year to between $91 billion and $93 billion.
“We are investing to meet customer demand and capitalize on the growing opportunities across the company,” CEO Sundar Pichai said in Alphabet’s earnings release.
Alphabet, which spent $52.5 billion in 2024, had already shocked Wall Street twice this year with its aggressive spending ambitions, first declaring a $75 billion outlay in February, and then boosting the projection to $85 billion in July.
Shares of the company rose 6% in extended trading.
The company reported total revenue of $102.35 billion for the quarter, compared with analysts’ average estimate of $99.89 billion, according to data compiled by LSEG. Adjusted profit per share of $3.10 beat estimates of $2.26.
Google Cloud’s 34% revenue growth helped it to remain as one of Alphabet’s fastest-growing segments as it benefitted from surging enterprise demand for AI-powered infrastructure and data analytics services.
The unit posted revenue of $15.16 billion, topping estimates of $14.72 billion. The performance was boosted by burgeoning enterprise demand for its AI infrastructure, even as returns for businesses adopting the technology remain uncertain.
That is evidenced by Google Cloud’s backlog of non-recognized sales contracts, which grew to $155 billion, according to Pichai. In July, Alphabet said the backlog had reached $106 billion.
The unit continues to close the gap with larger rivals Microsoft Azure and Amazon Web Services, aided by strong take-up of Vertex AI and its custom AI chips called Tensor Processing Units.
Competition in the broader AI and cloud market is intensifying, with rivals aggressively cutting prices and introducing new generative-AI capabilities.
SEARCH STEADIES
Revenue from Google’s advertising business rose 12.6% to $74.18 billion, well above estimates of $71.79 billion, allaying fears of some investors and indicating that the digital ad market has remained robust in the face of economic uncertainty and intense competition.
Alphabet’s advertising unit, which contributes the vast majority of the company’s revenue, has been competing in a crowded field of rivals vying for more ad dollars as lower interest rates are expected to lift the economy.
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