Alphabet updates AI spending forecast after earnings surprise
The hyperscaler wars are still raging despite concern earlier this year that cloud network players, including Alphabet, Amazon, and Microsoft, may cut capital spending on AI infrastructure.
Concerns that surging spending to refresh and build out cloud networks accelerated when China's DeepSeek chatbot launched with a shockingly low $6 million development cost, leading some to conclude that companies like Alphabet () wouldn't need to plow billions atop billions to buy the latest, greatest AI chips from Nvidia or servers from Super Micro.
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Yet the spending has continued, with big network players reaffirming, and in the case of Alphabet, ramping spending plans. As a result, the biggest cloud network providers are slated to see capital expenditures surge past $329 billion in 2025 – a record.
A huge battle is underway in AI app training and inference
Artificial intelligence has become a buzzword since OpenAI's ChatGPT became the fastest app to one million users when it launched in late 2022.
Seemingly, everyone is developing AI agents and deploying AI solutions to reshape businesses. ChatGPT's success has spawned AI chatbots from Alphabet (Gemini), Amazon (via Anthropic's Claude), Meta Platforms (Llama), and Elon Musk's xAI (Grok), among others.Meanwhile, AI apps are being developed to streamline processes and practices and potentially replace some workers' jobs.
Manufacturers are evaluating AI in quality control. Retailers are seeing if it can reduce theft and improve supply chains. Banks are using it to hedge risks. Seemingly every company in every industry is considering how AI benefits them.
The flurry of activity has caused a gold rush for compute power, and those with the most enormous compute capacity, including Alphabet's Google Cloud, are raking in big bucks renting server space to train and run AI programs.
Unsurprisingly, this has caused a tidal wave of demand for network infrastructure, including Nvidia's next-generation Blackwell GB200 AI chips, which can cost upwards of $60,000, and high-end, liquid-cooled servers sold by the likes of Super Micro and Dell, which can cost hundreds of thousands of dollars when fully configured.
Google's soaring earnings, capex show AI spending frenzy isn't over
Coming into Alphabet's highly anticipated second-quarter financial update, the company was already expected to spend $75 billion this year in capital expenditures, or capex.
Alphabet's latest revenue and profit figures show that robust demand for AI-related services isn't backing off, providing more room for even more spending.The company's sales surged 14% to $96.4 billion, outpacing Wall Street estimates of $94 billion. Operating income also climbed 14% to $31.3 billion, giving plenty of wiggle room and firepower to buy more of Nvidia's graphic processing units and server racks.
There's certainly demand to support it.
The Google Cloud business hauled in a whopping $13.6 billion last quarter, up 32% year over year. Google Cloud's operating income skyrocketed to $2.83 billion from $1.17 billion in the same quarter the previous year.
As a result, Alphabet has ramped up its capex forecast.
It now expects to spend a somewhat staggering $85 billion this year on its business, considerably more than the $73 billion Wall Street expected.
What Alphabet's Capex tsunami means
Alphabet CEO Sundar Pichai is clearly confident that demand for AI computing power isn't waning. Many technologists expect that inference demand, the actual use of AI apps, Chatbots, and agents, will eventually dwarf that of training.
As such, Alphabet appears unwilling to risk ceding any ground to rivals, including Microsoft Azure and Amazon's AWS. The increased spending will weigh on profit margins. However, despite the increased spending pace in the second quarter, Alphabet's operating margin was still at 32%, suggesting plenty of profit remains.
Perhaps what's most interesting is how rivals will respond this earnings season. Alphabet is the first of the major hyperscalers to report its results and update its capex guidance.
Microsoft, Amazon, and Meta Platforms have already announced plans to spend $80 billion, over $100 billion, and between $64 billion to $72 billion, respectively, in 2025. Those numbers may increase following Alphabet's decision.Alphabet updates AI spending forecast after earnings surprise first appeared on TheStreet on Jul 23, 2025
This story was originally reported by TheStreet on Jul 23, 2025, where it first appeared.
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