Google Cloud revenue jumped 82% year-over-year to $24.8 billion in the second quarter, far exceeding the 63% growth rate posted last quarter and beating the Wall Street consensus estimate of $22.46 billion1,4. ANALYSIS The result positions Google Cloud as the most direct evidence that Alphabet's AI infrastructure buildout is converting into enterprise revenue, though the cost of that buildout continues to escalate.
Alphabet reported overall second-quarter revenue of $119.8 billion, up 24% year-over-year, ahead of the $116.9 billion analysts expected3. Operating income reached $40.77 billion, with operating margins expanding 1.6 percentage points from a year ago. Reported earnings per share came in at $9.11, but that figure included a $99 billion contribution from equity investment gains driven by Alphabet's stakes in SpaceX and Anthropic. Excluding that gain, operational earnings were closer to $2.85 per share, which the Street treated as a bottom-line miss.
Google Cloud CEO Thomas Kurian told CNBC that existing customers are spending "roughly 50% more" than their committed amounts, attributing the overspend to product differentiation and go-to-market execution. Kurian cited Macquarie Bank automating workflows and Macy's seeing larger shopping baskets as examples of customers realizing returns from Google's AI solutions. The cloud segment's contracted backlog climbed to $514 billion.
Alphabet's capital expenditures reached $44.9 billion during the quarter, with most of that spending directed toward AI infrastructure. The company raised its full-year 2026 capex forecast to $195 billion to $205 billion, up from the $180 billion to $190 billion range given in April. Alphabet also said capex would increase significantly in 2027. Bank of America now projects Alphabet's capex could reach nearly $300 billion next year. Rising memory prices are contributing to the higher buildout costs.
The Financial Times reported that Google burned through $6 billion in cash during the quarter amid the infrastructure splurge6. Alphabet shares slid more than 7% on Thursday after the raised spending forecast.
To address capacity constraints, Kurian said Google plans to rent some capacity from third-party providers for a few quarters to bridge customers until sufficient internal capacity is available.
On the product side, Sundar Pichai said AI Mode has surpassed 1 billion monthly active users since expanding globally last October, and the Gemini app has reached 950 million monthly active users. Gemini model APIs are processing roughly 22 billion tokens per minute. Pichai said AI Mode and AI Overviews are driving an incremental increase in search queries, and Alphabet is sending billions of clicks to websites every week through AI features in Search. The company said it reduced the cost of AI Mode responses to its lowest level since launch. Nearly 90% of Fortune 100 companies are using Gemini Enterprise and Google Cloud Security.
"Our AI investments are redefining what's possible across every part of our business," Pichai said during the earnings call.
Alphabet also said it would initiate a $40 billion at-the-market offering program in the third quarter. Alphabet released a trio of more specialized models on Tuesday, including one targeted for cybersecurity tasks.
ANALYSIS The 82% cloud growth rate validates Alphabet's infrastructure thesis on the revenue line, but the widening gap between cloud revenue and capital expenditure — $24.8 billion in quarterly cloud revenue against $44.9 billion in quarterly capex — illustrates why investors remain uneasy.