- Revenue increased by 24% to hit $119.8 billion, more than the $117 billion expected by Yahoo Finance analysts
- Diluted earnings per share came to $9.11, more than the $2.95 expected by Yahoo Finance analysts
- Shares fell by 4% in after-hours trading
Alphabet reported its 12th consecutive quarter of double-digit revenue growth on Wednesday.
Revenue hit $119.8 billion during the second quarter of the year. Net income increased by 298% to $112.1 billion a share, helped by a massive one-time equity benefit of $98 billion. Excluding that, Google’s net income fell from a year earlier. Operating income rose 30.4% to $40.8 billion from a year ago, a metric that may better reflect how the company did during the quarter as it strips out one-time elements.
Increases in Google Services and Google Cloud led to the strong quarter. On the Google Services side, revenue increased by 15% overall to hit $94.5 billion. That was driven by 17% growth in Google search and other, a 15% increase in Google subscriptions, platforms and devices and a 13% uptick when it comes to YouTube ads. This quarter, revenue from YouTube ads came in at $11.1 billion.
As for Google Cloud, the offering saw a revenue increase of 82% to hit $24.8 billion. That was led by an increase in the Google Cloud Platform across enterprise AI solutions and enterprise AI infrastructure.
Despite all of these high numbers, after-hours shares of the company were down. This likely has to do with the fact that Alphabet increased its 2026 capital expenditures from its previous estimate of $180 to 190 billion to $195 to 205 billion, citing that it needed to increase spending on its AI products in order to keep up with the growing demand. Though AI is in vogue right now, Wall Street typically does not like increased spending. Also, the fanfare around AI has started to die down as more companies, like Uber, have revealed that AI tokens have not actually saved them money compared to human labor.
Unlike other major tech players, Alphabet’s stock has stayed consistently high, rising about 4% over the past three months. Amazon’s stock has stayed flat during this time period while Meta’s stock has declined by almost 6% and Microsoft’s has dropped by 5%.
AI growth led to the strong quarter
- Alphabet’s AI-powered features surpass 1 billion monthly active users
- Gemini’s API model processes 22 billion tokens per minute
- More than 9 million developers each month build with Gemini
A major reason why Alphabet has had so many impressive quarters consecutively has to do with the company’s investment in AI. Artificial intelligence has long been a big part of the company, but the company used its second quarter earnings call to really flex how well it’s been doing when it comes to this technology.
For example, Gemini’s API model now processes 22 billion tokens per minute, up from 16 billion tokens per minute last quarter. Also, Omni, the AI video creation tool part of Gemini, has led to a 40% increase in daily active users for the Gemini app. Speaking of the Gemini app, the offering now has 950 million monthly active users, and this quarter, the company was able to reduce the cost of AI mode responses to their lowest since launch.
An AI model war is brewing
In recent years, the AI landscape becomes more competitive with more advanced models coming from outside of America. During the call, Google CEO Sundar Pichai was asked directly about his strategy regarding a looming AI model war.
“We want to make sure that, for our customers, we are offering the best models at various price points,” Pichai said. “It’s very important to us to have the best frontier models out there as well as models which are very performant and low cost.”
On the frontier model front, Pichai emphasized that the company is putting “a lot of effort” in Gemini 4. Alphabet wants the model to be the best AI model on the market when it comes out. Once that model is released, iterations on it are planned to be released on nearly a monthly basis.
“We are applying a lot of our compute and effort in that direction,” he said. “But with that, we are creating a baseline on which you will see us rapidly iterate with subsequent model releases, so picking a pace and releasing models or [where] almost at a monthly cadence is part of our roadmap as we are building Gemini 4.”
YouTube subscriptions is still outpacing ads
Last quarter, the company reported that YouTube subscriptions outpaced its advertising division. That remained the case this quarter. YouTube Music and YouTube Premium have largely driven this growth as has YouTube’s growing presence in the living room. Internally, the company is using Gemini to better serve consumers on these subscriptions.
“Strong performance in search and YouTube underscores how our investments in AI translate into measurable value for users and advertisers,” Philipp Schindler, senior vice president and chief business officer at Google, said on the call.
The company also boasted its shopping option that allows viewers to shop directly from their television. Though no specific numbers were given, Schindler noted that YouTube Shorts are continuing to deliver “high-performing opportunities for social and video buyers” and that, when it comes to monetization across YouTube, the company is driving “sustained growth across our key priorities.”
More to come …