Analyst(s): Keith Kirkpatrick, Daniel Newman
Publication Date: April 25, 2025
Alphabet’s latest earnings show solid execution across core segments, with AI infrastructure and subscriptions playing an increasingly central role. The report highlights resilience in advertising and strong positioning for generative AI monetization.
What is Covered in this Article:
- Alphabet’s Q1 FY 2025 financial results
- Performance and trends across Search, YouTube, and AI-powered advertising formats
- Google Cloud’s 28% YoY growth, infrastructure investments, and traction in AI platforms
- Alphabet’s AI infrastructure leadership with the Ironwood TPU and CapEx strategy
- Final thoughts on Alphabet’s sustained AI momentum and financial positioning for FY25
The News: Alphabet Inc. (NASDAQ GOOGL) reported its Q1 FY 2025 results with consolidated revenue growing 12% year-over-year (YoY) (14% in constant currency or cc) to $90.2 billion (+1.2% above consensus estimates). Google Services revenue rose 10% YoY to $77.3 billion, with Google Search & other generating $50.7 billion (+10% YoY), YouTube ads at $8.9 billion (+10% YoY), and subscriptions, platforms, and devices contributing $10.4 billion (+19% YoY). Google Cloud revenue increased 28% YoY to $12.3 billion, 0.5% below consensus estimates.
Operating income rose 20% YoY to $30.6 billion (+6.5% above consensus estimates), with a 229 basis point expansion in operating margin to 33.9%. Net income increased 46% to $34.5 billion (+39% above consensus expectations), while diluted earnings per share (EPS) rose 49% YoY to $2.81, 40% above street expectations.
“We’re pleased with our strong Q1 results, which reflect healthy growth and momentum across the business. Underpinning this growth is our unique full-stack approach to AI,” said Sundar Pichai, CEO of Alphabet. “This quarter was super exciting as we rolled out Gemini 2.5, our most intelligent AI model, which is achieving breakthroughs in performance and is an extraordinary foundation for our future innovation.”
Alphabet Q1 FY 2025 Revenue Hits $90.2B, Driven by Cloud and Ads
Analyst Take: Alphabet delivered a strong Q1 FY 2025 with broad-based revenue growth, margin expansion, and accelerating AI momentum across Search, Cloud, and Subscriptions. While Google Cloud came in slightly below expectations, AI-driven demand trends, new product launches, and improved monetization across YouTube and Search more than offset the impact.
Strong Ad Revenue Highlights Market Leadership Despite Macro Caution
Advertising revenue rose 8% YoY to $66.9 billion, driven by double-digit Search and YouTube ads growth. Search & Other revenue climbed 10% YoY to $50.7 billion, led by strength in insurance, retail, healthcare, and travel. YouTube ads also grew 10% YoY to $8.9 billion, supported by strong direct response and expanding brand spend, including reservation-based ads, which more than doubled. Circle to Search saw usage increase by nearly 40% YoY, while Lens visual searches grew by over 5 billion since October.
Advertisers increasingly adopted AI-powered campaigns across Search and YouTube. In Demand Gen, campaigns using product feeds saw over 2x conversions per dollar YoY. YouTube Shorts engagement rose over 20% YoY, with monetization improving, particularly in the US. The ad business remains a growth anchor, supported by scaled AI rollout, continued product innovation, and commercial query expansion, even as macro-related questions on Q2 FY 2025 ad spending remain open.
Cloud Growth and AI Demand Fuel Structural Momentum
Google Cloud revenue surged 28% YoY to $12.3 billion, led by strong uptake across Google Cloud Platform’s (GCP) core infrastructure, AI platforms, and generative AI solutions. Operating income rose to $2.2 billion, lifting margins from 9.4% to 17.8%, reflecting improved scale and productivity. The cloud unit continues to be Alphabet’s clearest beneficiary of the AI boom as enterprise and startup customers ramp up computing needs for AI workloads. Customer demand outpaced data center capacity for a second consecutive quarter, prompting aggressive CapEx investment in servers and infrastructure.
Within GCP, Vertex AI supports over 200 foundation models, including Gemini 2.5 Pro, Flash, Imagen 3, and Veo 2, helping enterprises integrate multi-model AI. Google’s agentic platform is also gaining traction through Agent Designer and Agentspace, simplifying the creation of AI agents across 100+ enterprise applications.
To deepen its security and multi-cloud capabilities, Alphabet announced a definitive agreement to acquire Wiz, a fast-growing cloud security provider, in a deal expected to close in 2026. Wiz offers an agentless architecture that secures workloads across all major public clouds and code environments, aligning with Google Cloud’s goal to support flexible, interoperable AI deployments. Google Workspace further reinforces adoption, delivering more than 2 billion monthly AI assists across Gmail and Docs, underlining Cloud’s centrality to Alphabet’s long-term AI monetization strategy.
TPUs and In-House AI Stack Provide Strategic Advantage
Alphabet reaffirmed its full-year CapEx outlook of ~$75 billion for FY25, with Q1 FY 2025 investments reaching $17.2 billion, primarily directed toward technical infrastructure. A key focus remains AI infrastructure, where Alphabet is leveraging its internally designed hardware to drive both performance and cost leadership. The company also introduced its seventh-generation Tensor Processing Unit (TPU), Ironwood, its most powerful yet. Engineered specifically for inference at scale, Ironwood delivers a 10x performance boost over previous high-end TPUs and is nearly twice as power efficient, significantly lowering compute costs as AI workloads shift toward inference.
The ability to optimize across custom hardware, foundation models, and software tooling underpins Alphabet’s efficiency advantage over rivals dependent on third-party GPUs. This full-stack approach enhances Alphabet’s capacity to deliver enterprise AI solutions faster, more reliably, and at lower cost, which provides the company with a critical advantage, as demand for high-performance, sustainable AI infrastructure accelerates across various vertical markets.
Final Thoughts: Strong Profitability, AI-Led Momentum Supports 2025 Trajectory
Alphabet delivered a solid quarter across the board, with a strong performance in ads, margins, and Cloud, despite a minor revenue miss in the latter. The slight consensus shortfall on Cloud will likely spark concern, but it does little to detract from the broader AI-led momentum. Ad revenue growth remained resilient, supported by strength in Search and YouTube, and the business continues to hold up well relative to peers, even amid potential macro-driven ad pullbacks.
At Google Cloud Next, Alphabet showcased meaningful advances in AI consumption, hypercomputer stack progress, and the agentic orchestration platform, each of which saw strong early uptake. This reinforces the company’s end-to-end AI strategy and positions it well to monetize growth ahead. Backed by structural AI tailwinds, expanding enterprise adoption, and operational discipline, Alphabet is well-placed to sustain earnings momentum through FY25.
See the complete press release on Alphabet’s Q1 FY 2025 earnings on the Alphabet website.
Disclosure: The Futurum Group is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.
Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of The Futurum Group as a whole.
Other insights from The Futurum Group:
Google Debuts Ironwood TPU to Drive Inference-Focused AI Architecture at Scale
Alphabet Q4 2024: Ad Strength Overshadowed by Cloud Revenue Miss
Alphabet’s Proposed Acquisition of Wiz Shifts Cloud Security Landscape
Author Information
Keith has over 25 years of experience in research, marketing, and consulting-based fields.
He has authored in-depth reports and market forecast studies covering artificial intelligence, biometrics, data analytics, robotics, high performance computing, and quantum computing, with a specific focus on the use of these technologies within large enterprise organizations and SMBs. He has also established strong working relationships with the international technology vendor community and is a frequent speaker at industry conferences and events.
In his career as a financial and technology journalist he has written for national and trade publications, including BusinessWeek, CNBC.com, Investment Dealers’ Digest, The Red Herring, The Communications of the ACM, and Mobile Computing & Communications, among others.
He is a member of the Association of Independent Information Professionals (AIIP).
Keith holds dual Bachelor of Arts degrees in Magazine Journalism and Sociology from Syracuse University.
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
