Google parent Alphabet (GOOG, GOOGL) kicked off Big Tech’s earnings season on Tuesday, giving Wall Street its first look at digital ad and cloud spending in the quarter. The company reported better than expected earnings and revenue, on the strength of Search ads and continued cloud growth, but fell short on YouTube ad sales.
Alphabet also continues to spend billions building out its AI infrastructure. CFO Ruth Porat, who is transitioning to a new role as CIO, told analysts during the company’s earnings call that capital expenditures in the second quarter topped out at $13 billion, up from $12 billion in Q1. And the vast majority of that is going toward servers and data centers for AI capabilities.
The report sets the tone for the rest of the tech industry, as it prepares to provide Wall Street with the latest on not just AI spending, but also how much that spending is paying off in actual revenue.
So far, Alphabet says it’s seeing an uptick in cloud revenue with some of that coming from interest in AI products. But CEO Sundar Pichai sidestepped a more direct question about when analysts can expect to start seeing a return on capital investments related to AI, saying that the spending is necessary for a long-term bet like AI, adding that in situations like this it’s better to overinvest rather than underinvest and fall behind.