Google's parent company Alphabet reported second-quarter earnings that exceeded market expectations, driven by strong demand for artificial intelligence (AI). The company plans to increase investments in AI infrastructure, including data centers and servers, as its cloud business continues to grow rapidly. However, these large investments have resulted in a negative free cash flow.
On July 22, Alphabet announced that its Q2 revenue rose 24% year-over-year to $119.8 billion, surpassing market forecasts of approximately $117 billion.
The growth was primarily fueled by Google Cloud, which saw an 82% increase in revenue to $24.8 billion, driven by rising demand for AI services and infrastructure. Revenue from the search segment was approximately $63.3 billion, while total advertising revenue reached $81.6 billion.
Net income for the quarter was $112.1 billion, with earnings per share (EPS) of $9.11. This surge in net income included an estimated $98 billion in valuation gains from Alphabet's holdings in other companies, such as SpaceX, indicating that the increase was not solely from core business profits.
Investments in AI infrastructure also expanded significantly. Alphabet's capital expenditures (CAPEX) for Q2 reached $44.9 billion, doubling from the same period last year. CAPEX refers to funds used for long-term facilities and equipment, such as data centers and servers.
Alphabet has raised its annual capital expenditure forecast for the year from a previous range of $180 billion to $190 billion to a new range of $195 billion to $205 billion. This marks the second upward revision from an initial estimate of $175 billion to $185 billion, reflecting the growing need for data centers and servers as AI service usage increases.
As investments have surged, cash flow has come under pressure. The free cash flow (FCF) for Q2 was negative $5.86 billion. FCF represents the cash a company generates from operations after accounting for capital expenditures.
Alphabet's FCF was $10.1 billion in Q1, but it turned negative in just one quarter. The cumulative FCF over the past 12 months was $53.3 billion, indicating that the rapid growth in AI infrastructure investments has led to spending exceeding cash generated from operations.
Usage of AI services is also increasing rapidly. Sundar Pichai, Alphabet's CEO, stated, “About 90% of the Fortune 100 companies are using Gemini for enterprise applications,” adding that the monthly active users (MAU) of the Gemini app have reached 950 million.
The volume of data processed by the Gemini model through external services is also growing quickly, with tokens processed via application programming interfaces (APIs) totaling 22 billion per minute. Tokens are the basic units used by AI to process sentences and information.
* This article has been translated by AI.
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