Shares of Alphabet Inc. rose more than 3% in early Thursday trading after the tech giant’s second-quarter earnings report signaled a powerful message to investors: while AI investments are rising rapidly, so are the returns.
The upbeat results, which featured strong growth in the company’s cloud computing and advertising businesses, reflect Alphabet’s accelerating push to regain momentum in the artificial intelligence race—particularly after trailing key rivals last year.
A $10 Billion Bump in CapEx as Google Leans Into AI
Alphabet increased its 2025 capital expenditure forecast by $10 billion to $85 billion, citing heightened demand for cloud infrastructure and the need to scale its AI capabilities. The company also hinted at even larger spending in 2026, underscoring its long-term commitment to maintaining leadership in a rapidly evolving tech landscape.
“Google came back fighting this quarter,” said Bernstein analyst Mark Shmulik. “Investors have long been clamoring for Google to get more 'aggressive' in the AI race.”
Alphabet’s pivot is backed by rising investor expectations that spending on AI models and data centers will translate into both technological and financial gains. The move is part of a broader trend among Silicon Valley’s biggest firms to secure dominance in generative AI, which is already reshaping everything from search to productivity tools.
Cloud and AI Units Beat Expectations
Alphabet’s Google Cloud division delivered an impressive 32% year-over-year revenue increase, surpassing Wall Street forecasts. Analysts attributed the strong performance to growing enterprise demand and the early success of in-house TPUs (Tensor Processing Units) and the Gemini AI model, which has now exceeded 450 million monthly users.
Another major bright spot was the broader AI ecosystem, including the newly launched AI Mode, which reached 100 million monthly users within just two months of rollout. These milestones represent a clear rebound for Google, which has often been criticized for falling behind OpenAI and its partner Microsoft in the public perception of AI leadership.
Advertising Remains a Rock Despite Global Headwinds
While Alphabet pushes ahead in AI and cloud, its core advertising business—which still accounts for roughly 75% of total revenue—also outperformed expectations. Advertising revenue rose 10.4% in Q2, offering a strong signal of resilience amid global economic uncertainties, including tariffs and geopolitical tensions.
This is a positive sign not only for Alphabet but also for ad-reliant peers like Meta and Snap, which have similarly faced headwinds in digital ad markets.
Analyst Reactions: Optimism Tempered by Legal and Spending Risks
Following the results, at least 27 brokerages raised their price targets on Alphabet stock, pushing the median target up to $220, compared to $200 just a month ago, according to market data.
Despite the enthusiasm, some analysts cautioned that Alphabet’s rising capital expenditures may spark renewed investor scrutiny—especially in light of the stock’s underwhelming performance in 2025, up only 0.5% year-to-date. That compares unfavorably with Microsoft’s 20% gain and Meta’s 22% surge this year.
Alphabet also remains entangled in regulatory battles over its dominance in search and ad-tech markets, which some see as a cloud over its valuation.
“On paper, it has all the right tools to lead in AI—cutting-edge models and massive distribution,” said Matt Britzman, senior equity analyst at Hargreaves Lansdown. “That said, until there’s more confidence AI integration won’t cannibalize core search revenue, and some clarity around ongoing legal battles, there’s enough uncertainty to cap near-term upside.”
Alphabet’s 12-month forward price-to-earnings (P/E) ratio stands at 18.88, significantly below Microsoft’s 33.03 and Amazon’s 33.31, according to LSEG data—a sign of both opportunity and skepticism among investors.
Looking Ahead
Alphabet’s results offer a compelling narrative: a once-cautious AI pioneer is now playing offense. With soaring capital investments, expanding cloud operations, and growing AI product adoption, the company is making a strong case for long-term growth.
However, questions around profit margins, regulatory risks, and whether AI innovation can sustain rather than erode core revenue streams remain critical to the company’s trajectory.