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Google Strikes Back

AI Arms Race Heats Up: Alphabet Pours $85B Into Comeback Surge

lphabet shares jumped nearly 3% in premarket trading on Thursday after the company posted strong earnings that highlighted a key message for Wall Street: artificial intelligence investments are accelerating and beginning to generate real returns.

Stock climbs

The Google parent raised its 2025 capital expenditures forecast by $10 billion to $85 billion and signaled even greater spending ahead, ramping up its cloud infrastructure to meet rising demand and keep pace in the fiercely competitive AI race in Silicon Valley.

The company’s cloud division delivered a 32% revenue increase in the second quarter, outpacing analyst expectations. Alphabet credited the strong performance to its advancements in proprietary AI chips and the rapid growth of its Gemini AI model, which has now reached over 450 million monthly users.

Alphabet’s resurgence comes after a year in which it appeared to trail competitors like OpenAI and Microsoft. But the tide is shifting. Gemini’s rapid user adoption, hitting 100 million monthly users just two months after launch, and the momentum of its AI offerings signal a strong comeback.

“Google came back fighting this quarter,” said Bernstein analyst Mark Shmulik. “Investors have been waiting for a more aggressive stance on AI, and now they’re seeing it.”

Its core advertising business, still responsible for roughly 75% of total revenue, also exceeded expectations, rising 10.4% despite global economic headwinds. The ad performance bodes well for competitors like Meta and Snap, which similarly depend on digital ad revenue.

Alphabet’s solid results prompted at least 17 brokerages to raise their price targets for the stock, pushing the median target to $210.

Still, concerns remain. The aggressive capital outlays may raise questions among investors already wary of Alphabet’s modest 0.5% stock gain so far in 2025, especially compared to Microsoft’s 20% and Meta’s 21% increases. Ongoing regulatory challenges around Google’s dominance in search and ad tech continue to weigh on sentiment.

Alphabet currently trades at a 12-month forward P/E ratio of 18.88, lagging behind Microsoft’s 33.03 and Amazon’s 33.31, according to LSEG data.

“Alphabet has all the ingredients to lead in AI top-tier models and vast distribution power,” said Hargreaves Lansdown senior equity analyst Matt Britzman. “But investors still need reassurance that AI won’t erode core search revenues and that the legal cloud will eventually clear.”
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