Google Cloud Rides Enterprise AI Demand to 82% Growth

For Google, the evidence is increasingly coming from enterprise customers, where demand for computing capacity, Gemini models and AI applications contributed to an 82% increase in Google Cloud revenue and pushed Cloud backlog to $514 billion.

The scale of that demand has strengthened management’s view of the AI opportunity over the past year. Asked during the analyst Q&A whether Alphabet’s expectations for generative AI returns had changed, CEO Sundar Pichai said they had. He pointed specifically to conversations with corporate executives, saying many companies are “barely scratching the early stages of what’s possible here.”

Management has discussed supply constraints for several quarters. CFO Anat Ashkenazi acknowledged that demand continues to run ahead of the capacity Alphabet has added.

As a result, Google Cloud revenue reached $24.8 billion with Google Cloud Platform (GCP) growing faster than Cloud overall. AI infrastructure, core GCP products and AI solutions all contributed. Cloud operating income more than tripled to $8.8 billion.

Search remains the clearest test of whether Google can introduce generative AI as a tailwind to its core business. Search and other revenue rose 17% to $63.3 billion, while AI Overviews and AI Mode increasingly operate as parts of a single Search experience. Pichai said users are asking longer and more complex questions, and Google is seeing growth in total queries as people use AI features for searches they previously might not have made. The company is also extending AI Mode into more commercial queries, putting the product closer to shopping and purchase decisions.

Gemini Moves Into Search, Advertising and Commerce

Gemini is becoming a larger part of that enterprise proposition. Nearly 90% of Fortune 100 companies are using Gemini Enterprise. Alphabet said nearly 500 Cloud customers have each processed more than 1 trillion tokens during the past year, while more than 2,000 enterprises have consumed more than 100 billion tokens.

Customers are deploying Gemini within cybersecurity, data analytics and other applications, where the model operates as one component of a broader system. “The model is just an ingredient in those solutions,” Pichai told analysts.

The same strategy is appearing in Google’s consumer businesses, particularly where Search intersects with advertising and shopping.

Search and other advertising revenue saw retail making the largest contribution and finance also contributing significantly. YouTube advertising revenue increased 13% to $11.1 billion, driven by direct-response and brand advertising. Overall advertising revenue rose 14%.

The company is also using Gemini throughout its advertising system, including query interpretation, advertiser tools and ads accompanying AI-powered search experiences. The company said Gemini helped produce a 20% improvement in showing relevant shopping ads. More than half of Google’s small- to medium-sized business advertising customers now use AI to create or optimize advertising creative.

Commerce is moving closer to those search and advertising products. Management said on the call that Target and Steve Madden are now live on its open-source Universal Commerce Protocol. It also announced Universal Cart, which lets consumers put merchandise from multiple retailers into one cart across Google services and complete a single checkout.

YouTube is developing a similar connection between content, advertising and transactions. Google is expanding shoppable advertising formats and has introduced Buy with Google Pay, allowing connected-TV viewers to complete purchases directly from the television in two clicks. It is also using affiliate partnerships and YouTube Shopping commissions to connect creators more directly with sales.

Gemini itself is also accumulating consumer scale. The Gemini app reached 950 million monthly active users, while daily active users have tripled over the past year. Alphabet’s model application programming interfaces (APIs) are processing approximately 22 billion tokens per minute, up from more than 16 billion a quarter earlier. More than 9 million developers are building with Google’s models each month.

Overall, Alphabet revenue increased 24% to $119.8 billion, while operating income rose 30% to $40.8 billion.

The cost of supplying AI demand remains part of the equation. Capital expenditures reached $44.9 billion during the quarter, and Alphabet raised its 2026 capital spending forecast to $195 billion to $205 billion from $180 billion to $190 billion. Management said the increase reflects faster deployment of computing capacity, while third-party capacity will temporarily supplement Google’s infrastructure.  Investors, perhaps eyeing that ramp-up in investment, sent shares down 3.5% in after hours trading.

Asked about returns on additional computing investment in 2027, Pichai pointed to long-term customer agreements, renewals and continuing demand.

“We are seeing strong demand indicators, including long-term deals,” he said. “If anything, the dynamics look healthier than where we were about a year ago, and so that’s what gives us the confidence to undertake those investments.”