Strong Performance in Q1 Highlights Alphabet’s AI Investments
Alphabet Inc. has reported impressive results for the first quarter, with high demand for its cloud and artificial intelligence services driving strong financial performance. This success has not only boosted investor confidence but also reinforced the company’s commitment to its significant investments in AI infrastructure.
The company’s revenue, excluding partner payouts, reached $94.7 billion, surpassing the average analyst estimate of $91.6 billion. Earnings per share were reported at $5.11, exceeding the expected $2.62 from Wall Street analysts. Following the release of these figures, Alphabet shares rose over 6% in after-hours trading, closing at $349.94.
This performance has eased concerns among investors that Google’s core business — providing answers through search — could be overshadowed by competitors in the chatbot era. Instead, the company has taken proactive steps to modernize its search offerings and leverage its extensive data to develop advanced AI models and tools.
Growth in Cloud Business and AI Demand
Google’s cloud division, which turned profitable three years ago, is experiencing rapid growth, fueled by increasing demand for AI software and infrastructure. The Gemini chatbot app and enterprise tools are gaining traction, while search queries have hit an all-time high following the integration of AI tools, as noted by CEO Sundar Pichai during a call with analysts.
“AI has enhanced search, not killed it,” said Andrew Rocco, a strategist at Zacks Investment Research. “Google has masterfully integrated AI into its search offering.”
Alphabet is planning to invest up to $190 billion this year on capital expenditures, an increase from the previous estimate of $185 billion. This represents a significant jump from the $90 billion spent in 2025, with CFO Anat Ashkenazi stating that spending in 2027 will be “significantly” higher.
Strategic Moves and Market Expansion
One of the key strategies being pursued by Google is reducing the cost of answering user queries using AI, addressing one of the early concerns about the impact of generative AI on the company.
Investors are closely watching the cloud business for signs of continued growth, which is seen as a strong indicator of the pace of the AI boom. Google is competing with startups like Anthropic PBC and OpenAI to develop AI systems that can match human capabilities and sell them to businesses and consumers.
The cloud computing unit reported sales of $20 billion, exceeding the analyst forecast of $18.4 billion. The unit experienced a “meaningful acceleration in growth,” driven by demand for its AI software and infrastructure. Backlog, a measure of contracted work not yet recorded as revenue, nearly doubled from the previous quarter to over $460 billion.
“We are compute constrained in the near term, and as an example, our cloud revenue would have been higher if we were able to meet the demand,” Pichai said. “We are working through that moment and investing.”
Expanding the Addressable Market
For select customers, Google will begin offering tensor processing units (TPUs) to use in their own data centers. This move is expected to expand the addressable market, as TPUs are a highly sought-after alternative to Nvidia Corp.’s chips, especially as companies seek more computing power to keep up with AI demand.
Google also saw strong demand for its AI software. The number of paid monthly active users for Gemini Enterprise, a platform for AI agents, increased by 40% from the previous quarter. The consumer-facing Gemini chatbot had 750 million users at the end of 2025.
Dividend Increase and Competitive Landscape
In addition to its AI advancements, Google announced an increase in its dividend by 5%, resulting in a quarterly cash dividend of 22 cents. This reflects the company’s ongoing commitment to returning value to shareholders.
Despite the growing popularity of chatbots from startups like OpenAI and Anthropic, Google has managed to maintain consumer engagement with its search page. The company now provides AI-generated answers for many searches, significantly impacting how businesses that rely on Google traffic generate revenue.
Alphabet’s profits have also been bolstered by the rising value of its investments in private companies, including SpaceX, which is preparing for an initial public offering later this year. The company is also a major investor in Anthropic PBC, with the startup recently announcing that Google will invest up to $40 billion in the firm.
However, the relationship between Google and these companies has become increasingly competitive. SpaceX now owns xAI, Elon Musk’s AI and chatbot company. Internally, Google leaders are concerned about falling behind Anthropic in AI coding, as the startup’s product, Claude Code, gains popularity.
