Google parent Alphabet lifts capital spending to $85 billion amid surging cloud and AI demand

Alphabet has announced a significant boost in capital expenditure, raising its full-year spend forecast to $85 billion as the tech giant responds to what it described as “massive demand” for its cloud services and AI infrastructure. The figure marks one of the largest annual spending commitments in the company’s history and positions Google to expand aggressively in the artificial intelligence and cloud markets.

The move comes on the heels of a strong quarterly performance, with Alphabet surpassing Wall Street expectations on both revenue and profit. Google Cloud was the standout performer, recording a 32 percent jump in sales compared to the previous year, easily beating the 26.5 percent rise analysts had predicted.

“With this strong and growing demand for our Cloud products and services, we are increasing our investment in capital expenditures,” said CEO Sundar Pichai in the company’s earnings statement.

Chief Financial Officer Anat Ashkenazi told analysts that the capital spending surge would continue into 2026 due to “demand and growth opportunities,” adding that Alphabet is still grappling with more customer demand than it can currently meet. She also noted an improvement in the pace of server deployments but acknowledged that infrastructure remains a bottleneck in scaling services.

Investors had a mixed reaction. Shares initially dipped in after-hours trading before recovering as Alphabet executives detailed the growth story during their earnings call. Still, some analysts expressed concern over whether the company could monetise its AI investments quickly enough to maintain profitability.

Jesse Cohen, senior analyst at Investing.com commented, "Alphabet's latest earnings report showcased a robust performance, surpassing expectations across key segments, particularly in its cloud and advertising businesses. However, investor sentiment appears mixed due to Alphabet significantly raising its capital expenditure estimates, driven by aggressive investments in AI infrastructure and capabilities."

"While the increased spending underscores Alphabet's commitment to maintaining a competitive edge in emerging technologies, it also raises concerns about potential impacts on near-term profitability. AI investments are fueling the company’s strong capex commitments, though the market is questioning the pace of monetisation. The ROI may initially weigh on short-term margins, but we expect the investments to enhance product offerings and operational efficiencies within 2-4 years. Balancing these investments with effective execution and innovation will be essential for achieving a favourable ROI while maintaining investor confidence," Cohen added.

Alphabet’s spending push reflects the broader AI arms race unfolding across Big Tech. The company had already pledged $75 billion in capital expenditure earlier this year, part of an industry-wide push that could see over $320 billion invested globally to enhance AI capabilities.

Though Google Cloud continues to lag behind Amazon Web Services and Microsoft Azure in total market share, it is gaining ground, bolstered by AI features and custom hardware like its Tensor Processing Units (TPUs), which rival Nvidia’s GPUs.

The business unit saw a 28 percent increase in customer count over the last quarter, Pichai said. A key recent win was the addition of OpenAI, developer of ChatGPT, to Google Cloud’s list of capacity providers. The partnership surprised many, given OpenAI’s close alignment with Microsoft, but it reflects an industry shift toward multi-cloud strategies.

Google’s broader AI ecosystem is also showing strong momentum. The company reported that its AI Mode feature, launched just two months ago, has already reached 100 million monthly active users. Gemini, Google’s chatbot rival to ChatGPT, now boasts over 450 million monthly users, according to Pichai.

Advertising continues to be Alphabet’s primary revenue driver. The segment grew 10.4 percent to $71.34 billion in Q2, beating LSEG’s consensus estimate of $69.47 billion. Overall revenue for the quarter reached $96.43 billion, outpacing expectations of $94 billion. Net income came in at $2.31 per share, compared to analyst estimates of $2.18 per share.