Google AI spending pays off as cloud revenue hits $24.8bn
Alphabet's latest earnings show its massive investments in artificial intelligence are translating into lucrative enterprise contracts, signaling that the costly infrastructure buildout is securing long-term demand.
Alphabet reported a sharp acceleration in its cloud division, with revenue surging 82% year-over-year to reach $24.8 billion. This figure easily surpassed Wall Street forecasts of $22.46 billion and marked a significant step up from the 63% growth recorded in the prior quarter. Overall, the company posted a profit of $112.1 billion on total revenue of $119.8 billion.
The primary engine behind this unexpected growth is enterprise artificial intelligence. Google explicitly attributed the cloud spike to businesses rapidly adopting its AI infrastructure and software solutions. To underscore the durability of this trend, the tech giant revealed its cloud backlog has climbed to a staggering $514 billion, representing contracted work that has not yet been recognized as revenue.
Consumer adoption of the company’s underlying technology is also accelerating at pace. Gemini, Google’s flagship AI chatbot, now boasts 950 million monthly active users, a notable increase from 750 million in the final quarter of 2025. Meanwhile, the broader Google Services segment brought in $94.5 billion, representing a 15% increase from the previous year.
The capex question
For months, investors have openly worried whether Alphabet’s heavy spending on data centers and semiconductors would ever yield adequate returns. The company currently estimates its capital expenditures will land between $180 billion and $190 billion this year alone. Analysts repeatedly pressed chief executive Sundar Pichai on the exact timeline for a return on these massive infrastructure investments during the earnings call.
Pichai pointed to 2027 as the window when these compute capacity investments will fully materialize into returns. “We are seeing strong demand indicators, including long-term deals,” he said. “I think, if anything, the dynamics look healthier than where we were about a year ago, so that’s what gives us the confidence to undertake those investments.”
The sheer size of Google's cloud backlog carries direct implications for European markets. As continental enterprises race to integrate AI, they are committing to long-term contracts with American hyperscalers, locking in sustained demand for European data center real estate and industrial power. “Our AI investments are redefining what’s possible across every part of our business,” Pichai noted.
