Photo Credit: Photo Mix from Pixabay

Last week, Alphabet (Nasdaq: GOOG) announced its third quarter results that soared past market expectations. The stock climbed 5% in the after-hours trading session. This was a landmark quarter for Alphabet as it crossed the $100 billion quarterly revenue for the first time.
 

Alphabet’s Financials

Alphabet’s revenue grew 16% to $102.4 billion, ahead of analyst estimates of $99.9 billion. EPS of $3.10 was also ahead of analyst estimates of $2.33.

Google’s search business revenues grew 15% to $56.6 billion. YouTube advertising revenues grew from $8.9 billion a year ago to $10.3 billion, ahead of the market’s estimated $10.1 billion. Alphabet reported overall advertising revenues of $74.2 billion, compared with $65.9 billion a year ago. Cloud revenues of $15.2 billion grew 35%, ahead of the market’s estimated $14.7 billion. Google claimed that it had signed more billion dollar deals last quarter than it had signed in the last two years combined. Earlier last quarter, Google had reported a $10 billion cloud contract with Meta. Other Bets reported revenues of $344 million. 

Like others in the industry, Alphabet is also increasing its capital expenditures driven by the demand from Cloud customers. It now expects 2025 capital expenditures to be in the range of $91-$93 billion, up from $75-$85 billion spend projected earlier. The company expects the capital expenditures to continue to increase into 2026. Just to put the spend in perspective, Google, Microsoft, Meta, and Amazon combined have spent $360 billion on capital expenditures in the last 12 months.
 

Alphabet’s AI Strategy

Google is seeing the impact of AI across its product offerings, and it continues to invest in a full-stack approach toward AI infrastructure. Within AI infrastructure, it is scaling advanced chips in its data centers, including GPUs from Nvidia, along with its purpose-built TPU. Its TPU portfolio will soon see the launch of the seventh-generation TPU Ironwood. It is investing in TPU capacity to meet the demand. It recently announced a deal with Anthropic to allow Anthropic to access up to 1 million TPUs.

Within AI research including models and tooling, its portfolio includes Gemini 2.5 Pro, VO Genie 3, and Nano Banana. Over 230 million videos have been generated with VO3, and more than 13 million developers have built with Google’s generative models. Google is working on the release of Gemini 3 later this year. Earlier last month, Google announced that its Willow Quantum chip can now run an algorithm 13,000 times faster than the best supercomputers.

All these investments are translating into Google seeing adoption across its product portfolio. Its flagship agent Gemini now process 7 billion tokens per minute via direct API use. The Gemini app now has over 650 million monthly active users, and queries increased three times since the last quarter. Overall, Google is processing over 1.3 quarterly and monthly tokens, reporting more than 20 times growth in the year. Last quarter, Google integrated AI capabilities into Chrome as well.

Within search, Google is seeing significant expansion driven by AI. The AI experiences within Search have been built to highlight the web and are sending billions of clicks to sites every day. If analysts were worried that AI will take Search revenue away from Google, Google claims to be proving the opposite. Google claims that overall queries and commercial queries continued to grow in the quarter driven by AI overviews and AI mode. AI overviews have been particularly strong in driving growth as users are continuing to learn that Google can answer more of their questions. AI mode is resonating well with users and in the US, the company reported a “strong and consistent week-over-week growth in usage since launch.”

Last quarter, Google released AI Mode globally across 40 languages. The feature has more than 75 million daily active users. External market data also reveals that release of AI Mode contributed to a rise in Google’s share of search traffic. Google’s share had initially dropped after the release of AI-based offerings like that of Perplexity. But long-tail querying in Google is benefitting from the new AI Mode. AI Mode’s conversational approach and contextual search results appear to be helping users address longer, more complex queries. Google has not yet disclosed outbound click share from AI experiences or reporting to track them, and they would be interesting metrics to see.

Google’s stock is trading at $278.06 with a market capitalization of $3.35 trillion. It hit a 52-week high of $291.93 earlier this week a 52-week low of $142.66 in March this year.

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