Alphabet revenue tops expectations on record quarter for cloud unit
By Akash Sriram and Kenrick Cai
April 29 (Reuters) - Alphabet topped Wall Street estimates for quarterly revenue on Wednesday, as enterprise spending on artificial intelligence delivered the best quarter of reported growth for its cloud unit yet.
Shares of the company were up more than 6% in extended trading.
Alphabet’s Cloud Growth and Financial Performance
Record Revenue and Cloud Unit Surge
The Google parent company's total revenue rose 22% to $109.9 billion in the first quarter, above an estimate of $107.2 billion, according to LSEG data.
Revenue at Google Cloud grew 63% to $20 billion in the first quarter ended March, well above analysts' average estimate of a 50.1% increase, according to data compiled by LSEG. That growth rate is the best since the company began breaking out the segment's revenue in 2020, according to LSEG data.
AI Solutions Drive Growth
"Our enterprise AI solutions have become our primary growth driver for cloud for the first time," CEO Sundar Pichai said on a conference call with analysts, noting that sales on those products grew eightfold from a year ago.
Alphabet’s strong cloud results highlight how AI is emerging as a decisive growth engine for Google after years of trailing larger rivals, reassuring investors that its heavy spending is starting to pay off. The sharp acceleration in that business, fueled by demand for generative AI tools, for now appears to vindicate Alphabet’s push to turn its vast research capabilities into commercial gains.
TPU Chips and Market Expansion
Google also began selling its TPU chips, which compete with Nvidia's GPUs, directly to some customers, Pichai announced on the call.
For years Google reserved its TPUs, which stand for "tensor processing units," only for internal use to develop technologies such as its Gemini AI model. Its decision to lease TPUs to cloud customers helped drive growth for Google Cloud, but the company had held off on directly selling those chips until now.
Alphabet expects to begin recognizing a small percentage of revenue from the TPU sales agreements it has struck by the end of the year, with the vast majority of it converting in 2027, CFO Anat Ashkenazi said on the call.
In directly selling TPUs, the latest iterations of which were announced last week, Google saw a chance to expand its addressable market, Pichai said, even as it continues to face constraints on computing power.
Cloud Capacity Constraints and Backlog
That constrained capacity prevented even higher cloud revenue growth and contributed to the cloud unit's backlog nearly doubling quarter on quarter to $460 billion, he said. Ashkenazi added that the company expected to recognize just over 50% of that backlog over the next 24 months.
Capital Expenditures and Profitability
CAPEX HIKE
In order to do so, Alphabet signaled to investors its plans to continue aggressively increasing its capital expenditures.
Ashkenazi raised this year's forecast to between $180 billion and $190 billion, a $5 billion bump from what she announced last quarter, and said that Alphabet was planning another significant increase in 2027.
Capital spending in the first quarter more than doubled from a year earlier to $35.67 billion. Overall, Alphabet spent $91.45 billion of capex in 2025.
Financial Analyst Perspective
"Perhaps even more importantly than Alphabet's massive cloud growth pace is the broader justification that the $180 billion capex plan — that surprised the market last quarter — is well within the company’s spending power, considering the durability and quality of the revenue curve shown today," said Thomas Monteiro, a senior analyst at Investing.com.
Operating income for the cloud unit tripled to $6.6 billion in the first quarter from $2.2 billion a year earlier. Alphabet's overall consolidated operating income increased 30% to $39.7 billion.
Net income grew even more sharply to $62.6 billion, an 81% increase, though the figure was heavily boosted by a $36.9 billion gain on equity securities. Alphabet holds stakes worth billions of dollars in SpaceX and Anthropic, both of which are aiming for banner IPOs this year.
Competitive Landscape and AI Strategy
'FULL-STACK' APPROACH
The third-largest cloud services provider globally, behind Amazon Web Services and Microsoft's Azure, Alphabet has continued to land major deals, including expanded AI infrastructure partnerships with Meta and cybersecurity firm Palo Alto Networks.
Investors were more bullish on Alphabet than its two cloud rivals, both of which experienced a drop in stock price after also reporting quarterly earnings on Wednesday.
Comparison with AWS and Azure
Revenue at Amazon Web Services jumped 28% to $37.6 billion in the first quarter, compared with analysts' average estimate of a 25.1% increase to $36.6 billion, according to LSEG. Net sales overall grew to $181.5 billion. Azure and Microsoft's other cloud services revenue grew 40%, in line with consensus estimates.
Google Cloud's quarter showed "it can significantly contribute to the wider Alphabet portfolio after years of big operating losses," Forrester principal analyst Lee Sustar said.
Consumer AI and Subscription Growth
As its enterprise business boomed, Alphabet's Gemini chatbot drove its "strongest quarter ever" for consumer AI, Pichai said. He said the company was enjoying growth across the board thanks to its full-stack AI approach, referring to every layer of the AI technology chain including chips, data centers, AI models and developer tools.
The company said it had 350 million paid subscriptions across YouTube, its cloud storage and advanced AI service Google One and other products.
(Reporting by Akash Sriram in Bengaluru and Kenrick Cai in San Francisco; Editing by Tasim Zahid and Deepa Babington)
