Analyst(s): Keith Kirkpatrick, Daniel Newman
Publication Date: July 25, 2025
Alphabet’s Q2 FY 2025 earnings report highlights strong growth across Cloud, YouTube, and subscriptions, backed by continued Search and AI product deployment momentum. The company raised its capital investment outlook to support rising infrastructure demand and sustain its leadership in generative AI.
What is Covered in this Article:
- Alphabet’s Q2 FY 2025 financial results, focusing on the company’s strong top- and bottom-line growth.
- AI-driven growth in Search, including Gemini-powered Overviews and multimodal features.
- Google Cloud momentum led by enterprise AI demand and record backlog.
- Strategic increase in capital expenditures to scale infrastructure for AI workloads.
- Monetization strength and product adoption across next-gen AI surfaces.
The News: Alphabet Inc. (NASDAQ: GOOGL) reported its Q2 FY 2025 results with consolidated revenue rising 14% year-on-year (YoY; 13% in constant currency or cc) to $96.4 billion, which was 2.6% above analysts’ consensus estimates. Google Cloud revenue increased 32% YoY to $13.6 billion, exceeding estimates by nearly $500 million. Meanwhile, Google Services revenue grew 12% YoY to $82.5 billion, led by Google Search & Other at $54.2 billion (+12% YoY), YouTube ads at $9.8 billion (+13% YoY), and subscriptions, platforms, and devices at $11.2 billion (+20% YoY).
Operating income rose 14% YoY to $31.3 billion (at par with consensus), with the operating margin remaining stable YoY at 32.4%. Net income grew 19% YoY to $28.2 billion (+6.1% above consensus), while diluted earnings per share (EPS) increased 22% YoY to $2.31, topping estimates by 5.8%.
“Cloud had strong growth in revenues, backlog, and profitability. Its annual revenue run-rate is now more than $50 billion,” said Sundar Pichai, CEO of Alphabet. “With this strong and growing demand for our Cloud products and services, we are increasing our investment in capital expenditures in FY 2025 to approximately $85 billion and are excited by the opportunity ahead.”
Alphabet’s Q2 FY 2025 Earnings Top Estimates, Led by Strong Cloud Revenue
Analyst Take: Alphabet had a strong Q2 FY 2025, showing solid revenue growth across all its main business areas. Search, YouTube, subscriptions, and Cloud all performed well, boosted by growing use of AI. The company raised its full-year capital spending plan by $10 billion, signaling a firm push into AI infrastructure and rising demand across its platform. While higher depreciation and legal costs put some pressure on margins, strong revenue growth and rising token processing volume support confidence in Alphabet’s AI-focused shift.
Cloud Momentum Anchored by AI Infrastructure and Enterprise Demand
Google Cloud revenue jumped 32% year-over-year to $13.6 billion, beating expectations by nearly $500 million. Growth came from strong demand for core GCP services, AI tools, and Gemini-powered solutions. The Cloud backlog climbed to $106 billion, up 18% from last quarter and 38% from a year ago, helped by a surge in $250 million-plus deals and multiple billion-dollar contracts in the first half of the year. AI use cases played a major role, with more than 85,000 businesses using Gemini and usage growing 35x compared to last year. Cloud operating income hit $2.83 billion, with margins rising 940 basis points to 20.7%. This margin improvement demonstrates Alphabet’s growing success in scaling and profiting from AI and highlights the strength of its full-stack strategy across hardware, software, and services.
Search Reinvention with AI Overviews and Multimodal Capabilities
Search revenue grew 12% year-over-year to $54.2 billion, driven by features like AI Overviews, Circle to Search, Lens, and AI Mode, now generally available in the U.S. and India with more than 100 million monthly users.
AI Overviews, powered by Gemini 2.5, now reach more than 2 billion users in 200+ countries and helped boost query volumes by 10%, which likely contributed to a 4% increase in paid clicks. Lens visual searches rose 70%, and Circle to Search is now active on more than 300 million Android devices. New tools like AI-based business calling in Search, virtual try-on, and Deep Search are expanding how users explore and find info.
These updates are especially popular with younger users, showing the appeal of AI-first experiences. Together, they mark a major shift in how Search works and how it makes money. Google’s search capabilities have been under pressure, largely due to the presence of competitors such as OpenAI’s ChatGPT. However, Google’s continued development and use of these advanced, AI-driven search tools will reward loyal Google search users with more functionality and ease of use now and in the future, and should continue to help drive growth in search.
Capital Discipline Balanced with Strategic AI Investment
Alphabet now expects to spend around $85 billion in capital expenditures this year, up from the earlier $75 billion forecast, with most of it going into servers and data centers. In Q2, CapEx hit $22.4 billion, a 70% increase from last year, while depreciation rose 35% to $5 billion. This big investment is meant to meet soaring demand in Cloud and support AI token processing, which more than doubled from 480 trillion in May to over 980 trillion.
Although the spike in spending briefly dragged the stock down, it bounced back after CEO Sundar Pichai emphasized that this spending is key to keeping AI momentum going in both Cloud and Search. With rivals such as OpenAI, Meta, and Microsoft also ramping up investment, Alphabet has to stay aggressive, with its AI infrastructure investment plan now central to maintaining its leadership position.
Summary and Final Thoughts
Alphabet wrapped up Q2 FY 2025 with solid performance across Cloud, Search, YouTube, and subscriptions, helped by strong execution and growing use of AI-powered tools. Even with higher legal and depreciation costs, the company kept its edge through smart cost management and by scaling up monetization of AI.
The big jump in capital investment shows long-term confidence in AI infrastructure, backed by fast-growing enterprise demand. Alphabet’s ability to deliver on infrastructure, products, and monetization continues to set it apart, particularly from competitors that do not own or control the hardware or compute power that is powering the use of generative AI and agentic AI systems.
With a deepening lead in AI and steady revenue drivers, Alphabet remains in a strong position for continued growth into FY 2026 and beyond. The company will need to continue to demonstrate the effectiveness of its technology to deliver bottom-line ROI benefits to customers, which are quickly moving past the initial hype phase of AI, and are seeking to extract measurable business value on a continuing basis.
See the complete press release on Alphabet’s Q2 FY 2025 earnings on the Alphabet Investor Relations website.
Disclosure: Futurum 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 Futurum as a whole.
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Author Information
Keith Kirkpatrick is Research Director, Enterprise Software & Digital Workflows for The Futurum Group. 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.
