Google's $85 billion capital spend spurred by cloud, AI demand

In response to the escalating demand for cloud services, Google has announced an increase in its capital expenditure forecast for the year, raising it by $10 billion. The tech giant now anticipates spending a total of $85 billion in 2025, driven by a significant backlog in cloud services, as revealed by executives during their second quarter earnings report. This upward revision marks a substantial jump from the previously projected $75 billion, which was already well above the $58.84 billion that analysts had expected. The surge in demand for cloud offerings is paralleled by the rising popularity of AI services, prompting tech companies, including Google, to ramp up their infrastructure investments. In the second quarter, Google reported a remarkable 32% increase in cloud revenue, reaching $13.6 billion. The overwhelming demand has resulted in a staggering $106 billion backlog for Google's cloud services, as noted by Alphabet's finance chief, Anat Ashkenazi, during a post-earnings conference call. "It's a tight supply environment," she stated, highlighting the pressure on resources. The majority of Alphabet's capital spending in the last quarter was directed towards technical infrastructure, with approximately two-thirds allocated for servers and the remaining third for data center and networking equipment. Ashkenazi emphasized that the updated forecast is a reflection of increased server investments, improved delivery timelines, and accelerated data center construction to accommodate the growing demands of cloud customers. Despite the company's progress in deploying servers, Ashkenazi warned investors to prepare for further increases in capital expenditure in 2026, citing ongoing demand and emerging growth opportunities. While she did not elaborate on these opportunities, she assured that more details would be shared in future earnings calls. "We're increasing capacity with every quarter that goes by," Ashkenazi said. However, the heightened spending will also lead to higher expenses over time, which could impact profit margins. "Obviously, we're working hard to bring more capacity online," she noted, indicating the company's commitment to meeting customer needs.