Google Cloud Rides Enterprise AI Demand to 82% Growth

Alphabet’s second-quarter earnings announcement on Wednesday (July 22) provided a clearer answer to one of the central questions surrounding generative AI: Are businesses moving quickly enough from testing the technology to paying for it at scale?

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 ad...