Google is betting billions more on its cloud business

Google's cloud computing business is booming, and the tech giant plans to invest billions more into the service for the rest of 2025 after beating analysts' second-quarter estimates on Wednesday. 

Google Cloud brought in $13.6 billion in second-quarter revenue — up 32% from last year. Plus, its parent company Alphabet said the cloud service has a backlog worth $106 billion. Due to rising demand, Alphabet said it's committing an extra $10 billion this year to further build out its cloud service. Operating expenses for Google's cloud business totaled $2.8 billion in the second quarter.

Wall Street expected second-quarter revenue growth of 26.5% for Google Cloud, Reuters reported. However, the tech giant also shocked analysts by the significant increase to its yearly capital expenditures. 

"I don't think anyone was expecting a change to that 2025 capex guide," Dave Wagner, portfolio manager at Aptus Capital Advisors, said to Reuters. "Google had an amazing quarter. It was an easy beat, and it was just offset by this $10-billion increase in capex."

Google Cloud holds the third-largest market share in the global cloud infrastructure space, behind Amazon Web Services and Microsoft Azure. Its revenue reached $12.3 billion in the first quarter.

“Google Cloud appears to have quite significant growth opportunities given 15-20% cloud penetration of enterprise and the potential benefits of AI,” Jeffrey Wlodarczak at Pivotal Research Group said Thursday, adding that security risks and “one-off-costs” from converting to the cloud, among other reasons, could “lead to slower adoption than expected.” 

“Cloud had strong growth in revenues, backlog and profitability. Its annual revenue run-rate is now more than $50 billion," Alphabet CEO Sundar Pichai said in a press release. He added, "With this strong and growing demand for our Cloud products and services, we are increasing our investment in capital expenditures in 2025 to approximately $85 billion and are excited by the opportunity ahead."

Alphabet’s second-quarter capital expenditures totaled $22.4 billion, with the majority of that investment spent on technical infrastructure — about two-thirds on servers and one-third on data centers and networking equipment, Alphabet and Google SVP and CFO Anat Ashkenazi told investors. 

Even with Alphabet upping its investment by $10 billion from $75 billion for the rest of this year, Ashkenazi said the company still expects Google Cloud to remain in a “tight demand-supply environment going into 2026.” 

“We are investing more to expand,” Pichai said in the call, but noted there is “obviously a time delay” between Alphabet’s investment and progress. 

Ashkenazi noted in the call that the “significant increase” in capital expenditures over the last few years will “continue to put pressure on the P&L, primarily in the form of higher depreciation.” He said this quarter depreciation increased $1.3 billion year-over-year to $5 billion, reflecting a growth rate of 35%, and expects the growth rate to continue deprecating in the next quarter. 

“It's important as you think about Cloud growth not to think about this in a linear fashion, because the quarter-on-quarter growth rates could depend on the timing of capacity delivery and when that comes online, so that could move a little bit from quarter to quarter,” Ashkenazi said. 

Alphabet’s stock closed Wednesday at $191.51 and opened at $197.89 Thursday before dropping to a closing price of $193.20.