Alphabet's Growth Accelerates in Q2

Key Points

• Alphabet beat expectations on the top and bottom lines in the second quarter.

• Google Cloud is the most impressive growth driver, with revenue up 32% year over year.

• Management increased its 2025 capital expenditures forecast to now total $85 billion.

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Here's our initial take on Alphabet's (NASDAQ: GOOG)(NASDAQ: GOOGL) fiscal 2025 second-quarter financial report.

Key Metrics

Alphabet Is Seeing Accelerating Growth

In the first quarter of 2025, Alphabet handily beat expectations on both the top and bottom lines, with strong results across the entire business. So it's fair to say that expectations were high heading into the second quarter.

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For the second quarter, Alphabet beat expectations on both the top and bottom lines. Revenue came in at $96.43 billion, which was more than $2 billion ahead of estimates, and about $500 million of that beat was due to excellent (and better than expected) growth in Google Cloud revenue. On the bottom line, Alphabet reported $2.31 in EPS, which was $0.04 more per share than analysts had been looking for.

Beyond the headlines, Alphabet's business looked very strong. Google Cloud remains the strong point, with 32% year-over-year revenue growth, which represents an acceleration over last quarter's growth rate. On the Google Services side of the business, revenue grew 12%. Performance was quite strong among all of the different service businesses:

• Google Search revenue grew 12% to $54.2 billion.
• YouTube ad revenue grew 13% to $9.8 billion.
• Revenue from nonadvertising sources like subscriptions and hardware grew 20% to $11.2 billion.

Alphabet ended the second quarter with $95.1 billion in cash and securities on its balance sheet.

Immediate Market Reaction

Despite the strong business performance, the initial reaction to Alphabet's earnings report was slightly negative. As of 4:15 p.m. EDT on Wednesday, Alphabet shares were trading about 1% lower.

One potential reason for the negative reaction was increased capex as Alphabet aggressively builds out its artificial intelligence (AI) infrastructure. In fact, the company says it is increasing the 2025 capex forecast to $85 billion (previously $75 billion), and spent $22.4 billion in the second quarter. That's 70% more than the same period last year and 31% more than it spent in the first quarter. So far, it looks like the AI investment is positively impacting results, but the spending level might be concerning to investors.

What to Watch

Google's cloud revenue is clearly the main driver of growth right now, so it will be an incredibly important figure to watch. It's also possible that the company's Other Bets segment, which includes autonomous vehicle start-up Waymo, could start to be a significant contributor to revenue within the next year or two, especially if the ramp-up in the robotaxi business continues. The Other Bets segment generated $373 million in revenue in the second quarter, a relatively tiny amount compared with Alphabet's other businesses, but this could grow significantly as Waymo's rollout continues.

Helpful Resources

• Full earnings report
• Investor relations page

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Matt Frankel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.