What Management Said
Read the full Q2 2025 transcript ↗A reconciliation of non-GAAP to GAAP measures is included in today's earnings press release, which is distributed and available to the public through our investor relations website located at abc.xyz/investor. Q2 was a standout quarter for us, with robust growth across the company. We continue to see strong performance in YouTube as well as subscriptions, reflecting great momentum across these high-growth businesses. In the U.S., Shorts now earn as much revenue per watch hour as traditional in-stream on YouTube.
Cloud had a great quarter of strong growth in revenues, backlog, and profitability. We also offer the industry's widest range of TPUs and GPUs, along with storage and software built on top. Our AI infrastructure investments are crucial to meeting the growth in demand from cloud customers. Our 2.5 models have been a catalyst for growth, and 9 million developers have now built with Gemini.
Since then, we have doubled that number, now processing over 980 trillion monthly tokens, a remarkable increase. The Gemini app now has more than 450 million monthly active users, and we continue to see strong growth in engagement, with daily requests growing over 50% from Q1. We are really pleased with the growth in subscriptions, which caught a boost from our Google AI Pro and Ultra plans. We also saw strong growth in the use of multimodal search, particularly the combination of Lens and Circle to Search together with AI Overviews.
What went well
- Consolidated revenue of $96.4 billion, up 14% (13% constant currency), with Search, YouTube advertising, subscriptions/platforms/devices, and Google Cloud all posting double-digit growth.
- Search and other revenue grew 12% to $54.2 billion, led by retail and financial services; AI Overviews reached over 2 billion monthly users and drove 10%+ more queries on query types that show them.
- Google Cloud revenue grew 32% to $13.6 billion with operating income rising to $2.8 billion and operating margin expanding from 11.3% to 20.7%; annual run rate surpassed $50 billion.
- Cloud backlog reached $106 billion, up 18% sequentially and 38% year-over-year; deals over $250M doubled YoY and H1 billion-dollar deals matched all of 2024.
- Subscriptions, platforms and devices revenue grew 20% to $11.2 billion, driven by YouTube subscriptions and Google One, boosted by Google AI Pro and Ultra plans.
- YouTube advertising revenue grew 13% to $9.8 billion, led by direct response; Gemini app surpassed 450 million MAU with daily requests up over 50% from Q1.
- Monthly tokens processed across surfaces more than doubled from 480 trillion (I/O in May) to over 980 trillion.
What went wrong
- Network advertising revenue declined 1% to $7.4 billion.
- A $1.4 billion charge related to a settlement in principle of certain legal matters drove total operating expenses up 20% and pressured operating margin.
- Free cash flow of $5.3 billion in Q2 was affected by a sizable sequential increase in CapEx and cash tax payments (Q1 and Q2 federal taxes paid in Q2).
- Cloud remained in a tight demand-supply (capacity-constrained) environment expected to persist into 2026.
- Depreciation expense increased $1.3 billion YoY to $5 billion (35% growth) as prior CapEx investments hit the P&L.
Guidance Changes
| Metric | Period | Current guidance |
|---|---|---|
| Full-year CapEx | FY2025 | ~$85 billion |
| CapEx direction | FY2026 | further increase expected (details on a future call) |
Performance Breakdown
| Metric | YoY | Note |
|---|---|---|
| Consolidated revenue | +14% (13% cc) | Double-digit growth across Search, YouTube ads, subscriptions, and Cloud. |
| Google Search and other revenue | +12% | Growth across all verticals, largest contributions from retail and financial services. |
| YouTube advertising revenue | +13% | Driven by direct response advertising, followed by brand. |
| Network advertising revenue | -1% | Continued year-on-year decline in network. |
| Subscriptions, platforms and devices revenue | +20% | YouTube subscription offerings and Google One, with paid subscription growth the biggest driver. |
| Google Cloud revenue | +32% | GCP core and AI products grew faster than Cloud overall; Workspace grew on higher revenue per seat and seats. |
| Google Cloud operating income | to $2.8 billion (margin 11.3%->20.7%) | Strong revenue performance and expense efficiencies, partly offset by higher technical infrastructure and depreciation costs. |
| Google Services operating income | +11% | Margin flat at 40.1% as revenue growth and efficiencies were offset by the legal charge. |
| Alphabet operating income | +14% | Operating margin 32.4%; revenue growth and efficiencies offset by legal charge and higher depreciation. |
| Net income | +19% | Strong revenue growth flowed through to $28.2 billion. |
| Earnings per share | +22% | Net income growth plus lower share count from buybacks; EPS $2.31. |
| Other Bets revenue | $373 million (operating loss $1.2 billion) | Continued investment, with more resources allocated to Waymo. |
| Depreciation expense | +35% | Prior CapEx build-out translating to higher depreciation; $5 billion in the quarter. |
Earnings Call Themes & Trends
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| Monthly tokens processed across surfaces | 480 trillion (I/O, May) | over 980 trillion | — |
| Full-year 2025 CapEx outlook | ~$75 billion | ~$85 billion | — |
| Google Cloud annual revenue run rate | prior period below $50 billion | more than $50 billion | — |
| Cloud backlog | prior quarter (grew 18% sequentially into Q2) | $106 billion, +38% YoY | — |
| AI Overviews monthly users | growing toward 2 billion | over 2 billion across 200+ countries | — |
Q&A Summary
Eric Sheridan (Goldman Sachs): Implications of changed consumer behavior for volume vs. monetization over 3-5 years, and YouTube advertising vs. subscription mix.
Pichai: People are adopting AI well across products (multimodality via Lens/Circle to Search); Google will lead with the organic experience and bring strong commercial experiences over time, as with AI Overviews and AI Mode. Schindler: Values both ads and subscriptions; YouTube subscriptions (TV, Music, Premium) increasingly important, running a deliberate two-tier monetization strategy.
Doug Anmuth (JPMorgan): Access to compute despite spending $10B more, and paid click/pricing within the 12% Search growth.
Pichai: Strong momentum, especially in Cloud; it is a tight supply environment so investing to expand, with a time delay before capacity comes online. Schindler: Does not manage to paid clicks or CPC targets; some changes improve monetization at the expense of paid clicks; paid clicks up 4% YoY per the 10-Q; avoid drawing broad conclusions.
Brian Nowak (Morgan Stanley): Technological hurdles for scalable agents in commercial queries, and internal GenAI efficiency updates.
Pichai: Chaining events reliably where latency and cost compound is the main gap; models getting more efficient; expects 2026 to be the year agentic experiences are used more broadly. Internally rolling out agentic coding workflows for software engineers, overcoming earlier friction.
Michael Nathanson (MoffettNathanson): Importance of a new device cycle (Warby Parker glasses), and AI Mode vs. standalone Gemini app.
Pichai: AI will spur a new wave of hardware form factors, but phones stay central for at least the next 2-3 years. AI Mode shines for information-oriented queries grounded in Search; Gemini app spans conversational, therapy-like, coding, and long video use cases.
Mark Shmulik (Bernstein): AI talent war (attraction/retention) and resourcing costs alongside CapEx step-up.
Pichai: Top talent wants frontier work, compute access, and great peers; retention and new-talent metrics are healthy. Ashkenazi: Full-stack includes research talent (a critical resource); AI tools used internally drive efficiency to help offset investment.
Ross Sandler (Barclays): Ability to drive CTR as AI formats change impressions per SERP, and the OpenAI cloud relationship.
Schindler: AI Overviews drive higher satisfaction and usage, scaled to 2B+ users; monetizing at approximately the same rate, a strong base for next-gen ad formats. Pichai: Excited to partner with OpenAI on Google Cloud, an open platform, and to grow the relationship.
Mark Mahaney (Evercore): Ad environment for the back half vs. last year, and why the two-surface (Search + Gemini) approach is optimal.
Schindler: Q2 ads strong, led by retail and financial services (insurance strength) with healthcare a contributor; too early to comment on H2. Pichai: Two surfaces cover the breadth of human needs; Search is information-focused, Gemini is a personal assistant; over time will make experiences simpler as with universal search.
Ken Gorowski (Wells Fargo): Clarify back-half Cloud outlook given supply constraints, and whether agentic experiences democratize or concentrate the web.
Ashkenazi: More capacity coming online toward the back end of the year; do not model Cloud growth linearly as it depends on capacity delivery timing. Pichai/Ashkenazi: Agentic will be a better user experience; savvier players will lean in; business models for all players must be solved.
Justin Post (BofA): Progress on Gemini/Google One consumer subscriptions, and confidence in CapEx ROI given the cloud-driven increase.
Pichai: Accelerated subscription traction since the 2.5 Pro launch, a healthy quarter driven by AI plans. On ROI: growing install base, high customer satisfaction, low churn, and improving margin trajectory give confidence in healthy returns on cloud CapEx.
More on Alphabet Inc.
Reported 2025-07-23 · figures from the Alphabet Inc. Q2 2025 earnings call.
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