Alphabet held its quarterly earnings conference call in the second quarter of 2025, hosted by Jim Friedland and attended by several senior executives of the company. The meeting discussed the company's business operations and financial performance, while also highlighting potential risks and uncertainties. The call also mentioned the differences between GAAP and non-GAAP financial metrics.

In the second quarter, the company experienced significant growth, especially in the field of artificial intelligence (AI). AI technology is actively impacting various business segments of the company, driving strong quarterly growth. The search business achieved double-digit revenue growth, with newly launched search features performing well. The AI models launched in the United States and India are progressing well, and the AI Overview feature has attracted over 2 million monthly active users in more than 200 countries and regions, and in 40 languages. YouTube is also performing strongly, especially in the area of short video content, with revenue matching or even surpassing traditional video streaming in some regions. Additionally, the cloud business also achieved strong growth, with an annual revenue run rate exceeding $50 billion, driven by high demand for AI product portfolios. These achievements are attributed to the company's long-term investments in the field of AI, including AI infrastructure, research models, tools, and products and platforms that promote AI technology globally.

The dialogue detailed the company's latest developments in the field of AI, including world-class AI research, model development, and tools, especially the wide application and huge success of the Gemini 2.5 series hybrid reasoning model and the Vo 3 video generation model. In addition, it also emphasized the integration of AI technology in products and platforms such as Google Workspace and Chrome, as well as the collaboration with partners such as Samsung, showcasing the enormous potential of AI technology in enhancing user experience and driving business growth.

The application of AI technology has significantly driven Google's growth in the fields of search, cloud services, and YouTube. AI has unlocked new ways of querying in search, increasing global search volume by over 10%, especially among young users who have shown a significant increase in the use of AI summaries and multimodal search. Google Cloud services have attracted a large number of new customers including LVMH, Salesforce, and DBS Bank of Singapore , thanks to product differentiation and a comprehensive portfolio of AI products, driving a significant increase in the usage of the AI model Gemini. AI technology on YouTube has improved recommendation systems and automatic dubbing functions, increasing the audience base, while YouTube continues to expand its subscription options. In addition, Waymo's self-driving service continues to expand, testing and operating in multiple cities, demonstrating strong development momentum.

Google's service revenue reached $83 billion in the current quarter, an increase of 12% year-on-year, mainly driven by strong growth in search and YouTube, despite a slight decline in network revenue. Search revenue increased by 12%, particularly with strong performance in the retail and financial services sectors; YouTube ad revenue grew by 13%, benefiting directly from direct response ads. AI technologies, such as Gemini's multimodal capabilities, are leading innovation in the search field, including features like visual search, Circle to Search, and virtual try-ons, significantly improving user experience and interactivity, especially showing great potential in the shopping and gaming sectors.

Google has integrated AI translation capabilities to allow more people to access multilingual content, while also helping businesses of all sizes reach a wider customer base. With new features such as AI Max Search, advertisers have seen a 14% increase in conversion rates in search activities, while Smart Bidding Exploration has brought a 19% average increase in conversion rates for advertisers. Additionally, tools like Asset Studio help businesses quickly generate high-quality creative assets. On the YouTube platform, initiatives like Creator Partnership Hub make it easier for brands to collaborate with creators, using short video creation tools to enhance content creation efficiency and attractiveness. At the same time, strong collaboration with CTV has driven retail growth in advertising conversions and shopping ads, demonstrating the important role of AI in business transformation.

In the second quarter of 2025, Alphabet achieved a total revenue of $96.4 billion, an increase of 14% year-on-year, with revenue growth in the double digits for search, YouTube advertising, subscription platforms and devices, and Google Cloud. Revenue from Google services increased by 12% to reach $825 billion, primarily driven by strong performances in Google search, YouTube advertising, and subscription services. Revenue from Google Cloud grew by 32% to reach $13.6 billion, reflecting significant growth in GCP and Google Workspace. Additionally, the operating revenue and margin profit of Google Cloud increased to $2.8 billion and 20.7% respectively, reflecting strong revenue growth and continued cost efficiency improvements.

In the second quarter of 2025, Google announced significant financial and business progress. The company has signed multiple large deals exceeding one billion dollars, and in the "Other Bets" section, although revenue reached $3.73 billion, operating losses were $1.2 billion. Capital expenditures (CapEx) focused on investments in technology infrastructure, particularly servers and data centers, totaling $22.4 billion. At the same time, the company returned a total of $16.1 billion to shareholders through stock buybacks and dividends. Looking ahead, Google expects advertising revenue to be affected by the cyclical impact of financial services and advertising spending on the U.S. presidential election in the second half of 2025. The demand for cloud services is strong, and the company plans to increase capital expenditures to $85 billion to meet growing customer needs, with further increases expected in 2026. Additionally, the company plans to increase its workforce in key areas, with a focus on recruiting new graduates. Finally, Google emphasized its innovation and business growth in areas such as artificial intelligence, cloud computing, and YouTube, especially in the integration of AI technology and product service innovation.

In the discussion, the executives emphasized the importance of AI in products and its impact on consumer behavior, expecting AI to be deeply integrated into user experience and enhance business value. At the same time, they also discussed the balance between advertising and subscription businesses on YouTube, and how to achieve effective commercialization while maintaining user experience.

YouTube's subscription business, including YouTube TV, YouTube Music, and Premium, is a long-term focus and has shown strong growth. At the same time, subscription services provide viewers with more choices, and the company has a deep understanding of the dual-profit model of advertising and subscriptions, and will continue to actively develop its dual-track strategy.

The discussion centered around the company's capital expenditure plans, especially in the field of cloud computing, and the strategy for obtaining computing resources in the current tight supply environment. At the same time, the growth of the search business was also explored, particularly in terms of paid clicks and pricing growth, as well as how to balance investment and market demand to drive business development.

The company emphasizes that its business management focuses on enhancing the experience and effectiveness of users and advertisers, rather than simply pursuing the cost per click (CPC) target. Through adjustments to certain products and policies, despite potentially sacrificing click volume, it can achieve better monetization. Taking EDQ clicks as an example, its year-on-year growth is 4%, indicating that multiple factors such as advertiser investment, product changes, policy adjustments, and user engagement collectively influence these indicators. Therefore, when analyzing clicks and CPC, one should avoid making overly broad conclusions based solely on these metrics. The following questions are proposed by analysts from Morgan Stanley.

The dialogue discussed the main technical obstacles faced when building and deploying agent technology for commercial queries on a large scale, including issues of reliability, latency, and cost. Progress made in these areas was also mentioned, as well as the prospects for the agent experience expected in 2026. In addition, preliminary success and ongoing improvements in using these technologies for software engineering workflows internally were shared.

Google's CEO pointed out that AI will have a significant impact on the innovation of new devices, especially wearable devices such as glasses, and that smartphones will continue to be a core part of consumer experience. He further explained the differences between AI-powered search and traditional search, emphasizing that AI-powered search can provide more in-depth and accurate services in information-driven queries, while AI assistants like Gemini are more suitable for longer interactions and a more personalized experience. Google plans to continue innovating through these two platforms to provide users with a more seamless experience.

This conversation is initiated by Mark Smolik, who is a member of Bernstein. The conversation has now begun and is expected to cover multiple topics and discussion points.

The dialogue discussed Google's performance in the AI talent competition, emphasizing its strategies in attracting and retaining key AI talent, including investments in cutting-edge research, providing top-tier computing resources, and opportunities to collaborate with industry-leading talents. At the same time, it also mentioned the balance between AI-related resource costs and capital investment.

Google is closely monitoring the health status of its talent retention and recruitment efforts. Despite individual cases that may raise concerns, the company is performing well based on overall data. Google is committed to investing in talent and computing resources to seize future opportunities. In terms of cost structure integration, the company fully utilizes its full-stack resources, especially in talent, to ensure it has industry-leading experts, which is reflected in its operating expenses. At the same time, Google is striving to improve efficiency through internal use of AI tools to offset business growth and investments, ensuring the rational allocation of resources. The company maintains a high level of discipline and execution, continuously driving business efficiency.

The focus of the discussion is on how to enhance the monetization capabilities of advertisements by improving the relevance and click-through rate of search ads, while also exploring the current status and potential future expansion of collaboration with OpenAI in cloud infrastructure.

The conversation discussed the strong performance of the advertising business in the second quarter, especially the growth in retail, financial services, and healthcare sectors. At the same time, considerations were made regarding search strategy, including how to optimize services by understanding user intent and providing a unified search experience, as well as methods to meet diverse user needs on different search surfaces.

The conversation mainly focused on the outlook for Google Cloud business in the second half of the year, discussing the easing of supply constraints and growth strategies for cloud business. At the same time, it also explored whether agentic experience, like search engines twenty years ago, could promote the long-tail effect through the democratization of the Internet, or if it would lead to more concentrated winners in vertical fields. The discussion emphasized the non-linear nature of cloud business growth, as well as the fact that agentic experience needs to address not only technical issues but also business model issues.

During the discussion, it was mentioned that Google's subscription business, especially the AI-powered Google One and Gemini subscription services, are receiving positive market feedback and growth. In addition, regarding the increase in capital expenditure, Google stated that this is mainly due to them seeing high value and low customer churn in cloud services, so they are confident in obtaining a good return on these investments, especially in the current rapidly developing AI technology landscape.