Google earnings keep Silicon Valley’s AI flywheel spinning

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favorite tales on this weekly publication.Alphabet is giving traders an inch and taking a yard. The mum or dad of search large Google reported second-quarter earnings on Wednesday that comfortably outpaced what analysts anticipated, and stated its prodigious funding is creating seen outcomes. So it’s spending extra — way more. Anticipate this to set the tone for the following part of Silicon Valley’s AI race.Mother or father firm Alphabet reported 14 per cent income development for the three months ending in June, together with a 12 per cent enhance in search income, and 32 per cent in cloud computing. All comforting numbers for traders who might need feared that financial weak point, or the affect of tariffs on advertisers, may very well be weighing on development.Google’s future, nevertheless, hangs on greater, and vaguer, issues. The large query is what impact chief govt Sundar Pichai’s huge spending plans may have on its AI merchandise, what impact these merchandise may have on its customers, and what their response will do to income. There are a number of variables; largely, the solutions appear to be encouraging.Take into account AI Overviews, the algorithm-generated blurbs that usually now seem entrance and centre when customers ask questions. Fears that these would scale back the worth of search-adjacent advertisements haven’t come to move. Quite the opposite, Google says AI Overviews are driving 10 per cent extra queries in searches the place they seem and haven’t dented income. Paid clicks have been up 4 per cent yr on yr, the corporate stated in a name with analysts on Wednesday.However as AI yields extra, it prices extra. Google’s capital expenditure on knowledge centres and such trappings this yr will now be about $85bn, versus its prior estimate of $75bn. That’s nearly quadruple what the corporate spent in 2020, when AI was a glimmer in Silicon Valley’s eye. It’s additionally 22 per cent of the corporate’s anticipated income this yr, in keeping with LSEG, the very best annual degree since 2006.In actuality, the corporate can’t do in any other case. Rivals like Meta Platforms and OpenAI are money wealthy and investing hand over fist to win the AI arms race. In addition to knowledge centres, there are gadgets to consider: Meta is forward within the race to supply AI-powered glasses, and OpenAI is cooking up a brand new gadget with former Apple design tsar Jony Ive. Google, for its half, has inked a fledgling partnership with eyewear-maker Warby Parker. Pichar says Google’s mountainous investments are already delivering worth and pleasing clients. Requested by analysts what meaning by way of precise monetary returns on Wednesday, he equivocated. So, normally, do his friends, who will in all probability now comply with with capital-expenditure bumps of their very own. Google hasn’t but confirmed all this funding is value it. Nevertheless it has achieved sufficient to make sure the money-go-round retains spinning.john.foley@ft.com