Google's cloud boom is easing investor worry over AI spending

Investors have publicly worried that Alphabet’s massive AI spending isn’t paying off, but the company’s latest earnings suggest otherwise. Google Cloud revenue — driven largely by enterprise AI adoption — climbed 82% year-over-year to $24.8 billion, well above last quarter’s year-over-year growth of 63% to $20 billion, and ahead of Wall Street analysts’ expectation of $22.46 billion for the quarter. Alphabet said the cloud gains came largely from enterprise AI solutions and enterprise AI infrastructure adoption, and that its backlog of cloud contracting work — bookings not yet converted into revenue — climbed to $514 billion.

Alphabet’s overall profit hit $112.1 billion, a massive jump from the $28.1 billion it reported in the same quarter last year. Total company revenue grew 24% year-over-year to $119.8 billion, while Google Services revenue rose 15% to $94.5 billion. “Our AI investments are redefining what’s possible across every part of our business,” Google CEO Sundar Pichai said on Wednesday’s earnings call. “We have exciting momentum across the board.” More users are also adopting Gemini, Google’s AI chatbot, which now has 950 million monthly active users, up from 750 million in the fourth quarter of 2025. This marked Alphabet’s 12th consecutive quarter of double-digit revenue growth, though the company said this quarter was a particularly strong one even by that standard.

Alphabet’s spending remains heavy: capital expenditures — money spent on data centers, chips, and infrastructure — are estimated at between $180 billion and $190 billion for the year, a figure analysts pressed Pichai on during Wednesday’s call, asking when and how much those investments will pay off. Pichai pointed to “compute capacity investments in ‘27” and said Alphabet is “seeing strong demand indicators, including long-term deals.” He added: “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.”

Why it matters

Google’s cloud numbers give Alphabet a concrete answer to a question that has dogged every major AI spender this year — whether the enormous capital outlay is actually converting into revenue — and its $514 billion contract backlog suggests the demand behind that spending is not slowing down.