Alphabet lifts AI spending as Google Cloud backlog reaches $514bn

Alphabet reported a sharp acceleration in its cloud business, saying enterprise demand for AI computing, Gemini models and related software helped lift Google Cloud revenue 82% in the second quarter. The company said Google Cloud backlog reached $514bn, underscoring the scale of contracted demand as corporate customers expand use of generative AI.

For the group, revenue rose 24% to $119.8bn and operating income increased 30% to $40.8bn, according to Alphabet’s earnings announcement. Google Cloud revenue reached $24.8bn, with Google Cloud Platform growing faster than the cloud division as a whole, while cloud operating income more than tripled to $8.8bn.

Alphabet chief executive Sundar Pichai told analysts that management’s expectations for generative AI returns had strengthened over the past year. Referring to discussions with corporate leaders, he said many companies are “barely scratching the early stages of what’s possible here.”

Finance chief Anat Ashkenazi said demand continues to exceed the capacity Alphabet has added. The constraint matters because AI services depend on access to computing infrastructure, including data centers, chips and networking capacity. Alphabet said it is accelerating deployment of its own capacity and will use third-party capacity for a period to supplement its infrastructure.

Gemini adoption expands across enterprises

Alphabet said Gemini is increasingly embedded in its enterprise offering. Nearly 90% of Fortune 100 companies are using Gemini Enterprise, according to the company. It also said close to 500 cloud customers have processed more than 1tn tokens each over the past year, while more than 2,000 enterprises have consumed more than 100bn tokens.

Tokens are the units of text, code and other inputs processed by AI models, so the figures indicate the volume of model usage across customer workloads. Alphabet said customers are applying Gemini in areas including cybersecurity and data analytics, where the model forms part of broader software systems. Pichai told analysts: “The model is just an ingredient in those solutions.”

Alphabet also pointed to growing consumer and developer use. The Gemini app reached 950mn monthly active users, while daily active users tripled over the past year, according to the company. Alphabet said its model APIs process about 22bn tokens a minute, up from more than 16bn in the prior quarter, and that more than 9mn developers build with Google’s models each month.

Search, ads and commerce add AI features

Search remained central to Alphabet’s effort to turn generative AI into revenue growth. The company said Search and other revenue rose 17% to $63.3bn as AI Overviews and AI Mode became more closely linked within the search product.

Pichai said users are submitting longer and more complex queries, and that total query volume is rising as people use AI features for searches they may previously have skipped. Alphabet is also extending AI Mode into more commercial queries, bringing the tool nearer to shopping and purchase decisions.

Advertising revenue increased 14%, according to the company. Search and other advertising benefited most from retail, with finance also contributing. YouTube advertising revenue rose 13% to $11.1bn, supported by direct-response and brand advertising.

Alphabet said Gemini is being used across its advertising systems, including query interpretation, advertiser tools and ads shown with AI-powered search features. The company said Gemini produced a 20% improvement in showing relevant shopping ads, and that more than half of its small and medium-sized business advertising customers now use AI to create or optimize creative material.

The company also said Target and Steve Madden are live on its open-source Universal Commerce Protocol. Alphabet announced Universal Cart, a feature designed to let users add goods from multiple retailers into one cart across Google services and complete a single checkout. On YouTube, Google is expanding shoppable ads and introduced Buy with Google Pay for connected-TV purchases in two clicks.

The investment required to meet AI demand remains large. Alphabet said capital expenditure reached $44.9bn in the quarter and raised its 2026 capital spending forecast to $195bn to $205bn, from $180bn to $190bn. Shares fell 3.5% in after-hours trading following the announcement.

Asked about returns from additional computing investment in 2027, Pichai cited long-term customer agreements, renewals and continued demand. “We are seeing strong demand indicators, including long-term deals,” he said.

This story draws on original reporting from PYMNTS.