Alphabet Inc. Q2 FY2025 earnings call

• AI is driving robust growth across all segments. Search saw double-digit revenue growth with AI Overviews and AI Mode performing well. • YouTube Shorts now earns as much revenue per watch hour as traditional in-stream, and AI is improving recommendations. • Google Cloud had 32% revenue growth, with an operating margin expanding to 20.7%. • Waymo is scaling, having launched in new cities and expanded service territories. • Innovations like AI-powered meeting notes in Google Meet and Google Vids in Workspace are driving user growth.

Google Services revenues increased 12% to $82.5 billion. Google Search and other revenues rose 12% to $54.2 billion. YouTube advertising revenues jumped 13% to $9.8 billion, while network advertising revenue was down 1% at $7.4 billion. Subscription platforms and devices revenues grew 20% to $11.2 billion. Google Cloud revenues soared 32% to $13.6 billion. Other Bets had revenue of $373 million and an operating loss of $1.2 billion.

• Alphabet now expects $85 billion in CapEx for 2025, up from $75 billion, driven by cloud demand. • Outlook for 2026 CapEx is expected to increase further due to customer demand and growth opportunities. • Cloud backlog reached $106 billion, with strong demand continuing into 2026.

• Supply constraints in cloud, which will take time to ease despite increased CapEx. • Volatility in exchange rates could impact revenue. • Legal charges, such as the $1.4 billion settlement in principle, can affect operating results.

Q: Eric Sheridan asked about consumer behavior changes and YouTube subscription mix.

A: Sundar Pichai noted AI is driving user adoption, and Philipp Schindler said YouTube subscriptions are increasingly important with a double tier strategy.

Q: Doug Anmuth inquired about compute access and search growth.

A: Sundar Pichai said increased CapEx is to match cloud demand, and Philipp Schindler clarified they don't manage pay clicks and CPC targets directly.

Q: Brian Nowak asked about agentic search technology hurdles and internal GenAI efficiency.

A: Sundar Pichai discussed progress in agentic capabilities and internal use of AI tools.

Q: Michael Nathanson asked about AI and new devices, and Search vs Gemini app.

A: Sundar Pichai talked about AI enabling new device experiences and differences in usage between Search and Gemini app.

Q: Mark Shmulik asked about AI talent and resourcing costs.

A: Sundar Pichai spoke about attracting and retaining AI talent, and Anat Ashkenazi discussed integrating talent into cost structure.

Q: Ross Sandler asked about Search CTR and OpenAI partnership.

A: Philipp Schindler said AI Overviews drive usage and satisfaction, and Sundar Pichai discussed OpenAI partnership on Google Cloud.

Q: Mark Mahaney asked about ad environment and Search surfaces.

A: Philipp Schindler said it's early to comment on back half ad environment, and Sundar Pichai explained the two-surface approach for Search.

Q: Ken Gawrelski asked about cloud back half outlook and agentic experience impact.

A: Anat Ashkenazi clarified cloud capacity easing towards end of 2025, and Sundar Pichai opined on agentic experience democratizing the web.

Q: Justin Post asked about Gemini subscriptions and CapEx ROI.

A: Sundar Pichai discussed growth in Gemini subscriptions, especially with Google One, and confidence in CapEx ROI due to cloud demand and high customer satisfaction.