Google Conference Call: AI commercialization fully realized, cloud business backlog orders surged by 46%, Gemini monthly active users exceeded 650 million

Google's quarterly revenue has surpassed the $100 billion mark for the first time in history, with the comprehensive commercialization of AI driving double-digit growth across all core businesses. The company has significantly raised its capital expenditure to $93 billion to enhance investments in AI infrastructure.

According to an article from Wall Street Insight, Google's parent company Alphabet achieved a historic milestone in the third quarter of 2025—quarterly revenue exceeded $100 billion for the first time, a year-on-year increase of 16%. More notably, all major business segments, including search, YouTube, and cloud computing, achieved double-digit growth.

The core driver of this impressive performance comes from the deep application of AI technology. CEO Sundar Pichai stated during the earnings call, "AI is now delivering tangible business results for the entire company." Google has adopted a full-stack AI approach, forming a complete layout from infrastructure, model research to product application, with the amount of tokens processed monthly skyrocketing from 98 trillion in July to over 130 trillion, growing more than 20 times within a year. The monthly active users of the Gemini application have surpassed 650 million, with query volume tripling compared to the second quarter.

The commercialization process of AI technology is accelerating. Google Cloud's revenue reached $15.2 billion in the third quarter, a year-on-year increase of 34%, with AI-related revenue reaching "tens of billions of dollars each quarter." The backlog of cloud business orders surged 46% quarter-on-quarter to $155 billion, indicating strong market demand. Notably, the number of contracts exceeding $1 billion signed in the first nine months of 2025 has surpassed the total of the past two years, reflecting strong demand from enterprise customers for AI infrastructure.

In the core search business, new features such as AI overview and AI mode are reshaping user experience and driving query volume growth. The daily active users of AI mode in the U.S. have exceeded 75 million, with query volume doubling since its launch. Pichai emphasized, "The growth rate of overall queries and commercial queries in the third quarter has improved, primarily driven by AI investments."

In the face of the enormous opportunities brought by AI, Google is making the largest infrastructure investment in its history. CFO Anat Ashkenazi announced that the expected capital expenditure for 2025 has been raised from the previous $85 billion to $91-93 billion, far exceeding the market expectation of $80.67 billion. More importantly, Google has clearly stated that capital expenditure will "significantly increase" in 2026. Ashkenazi emphasized, "We will continue to invest to support AI growth, and we expect capital expenditure to remain high in the coming quarters."

Top 10 Highlights from Google's Q3 2025 Earnings Call

First to exceed $100 billion in quarterly revenue: Alphabet's Q3 revenue reached $102.3 billion, a year-on-year increase of 16%, with all major businesses achieving double-digit growth, doubling quarterly revenue within five years

AI-driven search query volume accelerates growth: The AI Overview and AI Mode have driven an increase in overall and commercial query volumes in the third quarter, with AI Mode query volume doubling, now boasting over 75 million daily active users in the United States.

Gemini app rapidly expands: The Gemini app's monthly active users have surpassed 650 million, with query volume increasing threefold quarter-on-quarter, and the number of tokens processed monthly rising from 98 trillion in July to over 130 trillion, a year-on-year growth of over 20 times.

Cloud business growth accelerates strongly: Google Cloud revenue grew by 34% to $15.2 billion, with operating profit margin increasing from 17.1% to 23.7%, and AI-related revenue reaching several billion dollars per quarter.

Significant increase in cloud order backlog: The cloud business backlog grew by 46% quarter-on-quarter to $155 billion, with contracts worth over $1 billion signed in the first nine months of 2025 exceeding the total of the past two years.

Paid subscriptions surpass 300 million: Driven mainly by Google One and YouTube Premium, the number of paid subscriptions has exceeded 300 million, with subscription, platform, and device revenue growing by 21% to $12.9 billion.

Significantly raised capital expenditure expectations: Capital expenditure expectations for 2025 have been raised from $85 billion to $91-93 billion, with a significant increase expected in 2026, primarily directed towards AI infrastructure to meet strong demand.

YouTube's dual-engine monetization performs excellently: YouTube ad revenue grew by 15% to $10.3 billion, with gross profit from Premium subscribers significantly higher than that from pure ad users, demonstrating the effectiveness of the dual-engine strategy.

AI Max becomes the fastest-growing ad product: Launched globally in September, AI Max in Search has been utilized by hundreds of thousands of advertisers, unlocking billions of new query opportunities in just the third quarter.

Waymo accelerates global expansion: Waymo plans to open services in London in 2026 and enter Tokyo, expanding to several U.S. cities including Dallas and Nashville, and has obtained autonomous operation permits at San Francisco Airport.

AI fully empowers, search business welcomes expansion moment

AI is reshaping the core experience of Google Search. CEO Sundar Pichai emphasized in a conference call that "AI is driving the expansion moment of search," a judgment supported by solid data.

In the third quarter, revenue from Google Search and other businesses reached $56.57 billion, a year-on-year increase of 15%, with growth achieved across all major verticals, particularly in retail and financial services. This impressive performance is primarily attributed to the innovations of AI Overview and AI Mode.

AI Overview has reached over 2 billion users and has shown excellent performance in driving overall query growth, with this effect being more pronounced among younger user groups. Even more exciting is that AI Mode has achieved strong week-on-week growth since its launch, with query volume doubling this quarter, now boasting over 75 million daily active users and having been launched in 40 languages worldwide Chief Business Officer Philipp Schindler revealed key monetization data: "For the AI overview, we see that overall monetization rates are roughly the same even at the current advertising benchmark levels." This means that the AI-driven search experience not only enhances user satisfaction but also maintains good commercialization capabilities.

Google also launched the AI Max in Search product, which helps advertisers cover a broader range of queries. This product unlocked billions of new queries in just the third quarter, becoming the fastest-growing AI search advertising product, with hundreds of thousands of advertisers already using it.

Cloud Business Strongly Rising, AI Demand Drives Record Growth

Google Cloud delivered an impressive performance in the third quarter, with revenue reaching $15.16 billion, a year-on-year increase of 34%, far exceeding the market expectation of $14.75 billion. This marks several consecutive quarters of accelerated growth.

AI has become the core engine of growth for the cloud business. Pichai revealed that over 70% of cloud customers are using Google AI products, with the number of new cloud customers increasing by 34% year-on-year. More importantly, enterprise AI products have contributed billions of dollars in revenue each quarter, with revenue from products built on generative AI models growing by over 200% year-on-year.

Google Cloud's differentiated advantage lies in its "full-stack AI" capabilities. As the only cloud service provider offering both self-developed TPU chips and NVIDIA GPUs, Google has built a complete ecosystem from underlying infrastructure to top-level applications. The seventh-generation TPU Ironwood is about to be fully launched, and Anthropic has announced plans to use up to 1 million TPUs, a collaboration expected to bring Google up to $10 billion in revenue annually.

The backlog of cloud business orders reached $155 billion, a quarter-on-quarter increase of 46% and a year-on-year increase of 82%, indicating strong future growth potential. Notably, the number of large deals worth over $1 billion signed in the first nine months of 2025 has already surpassed the total of the past two years.

Profitability also performed excellently. The operating profit of the cloud business reached $3.6 billion, a year-on-year increase of 85%, with the operating profit margin rising from 17.1% in the same period last year to 23.7%, showcasing the profit improvement brought by scale effects and technological advantages.

YouTube's Dual Engine Powers Growth, Subscription and Advertising Synergize

YouTube continued its strong growth momentum, with third-quarter advertising revenue reaching $10.26 billion, a year-on-year increase of 15%, primarily driven by direct response advertising, with brand advertising also contributing.

Schindler described YouTube's business model as a "dual-engine monetization strategy"—advertising and subscriptions driving growth in tandem. The average value of YouTube Music and Premium subscription users is significantly higher than that of purely ad-supported users, creating higher gross profits for the platform. This quarter, Google’s paid subscription users surpassed 300 million, primarily driven by growth in Google One and YouTube Premium.

In terms of user engagement, YouTube continues to dominate. According to Nielsen data, YouTube has maintained the top position in streaming watch time in the U.S. for over two consecutive years The commercialization progress of YouTube Shorts is particularly impressive. In the U.S. market, the revenue generated per hour of viewing short videos has already surpassed that of traditional long videos.

AI technology is also deeply transforming the YouTube ecosystem. The newly launched AI-driven features simplify the entire workflow from content creation, editing to channel optimization. Using generative video tools like Veo 3, creators can produce content more efficiently. The automatic product recognition feature helps creators enhance the purchasability of videos and expand monetization channels.

The living room scene has become a new growth point. Interactive direct response advertising has exceeded an annual revenue operation rate of $1 billion globally. YouTube has become the first live broadcaster for the NFL, with exclusive global live broadcasts from Brazil attracting over 19 million viewers, setting a new record for simultaneous viewers on YouTube Live.

The largest investment bet in history, capital expenditure aimed at AI infrastructure

In the face of the enormous opportunities brought by AI, Google is making the largest infrastructure investment in history. CFO Anat Ashkenazi announced that the expected capital expenditure for 2025 has been raised from the previous $85 billion to $91-93 billion, far exceeding the market expectation of $80.67 billion. Capital expenditure in the third quarter reached $24 billion, with about 60% directed towards servers and 40% towards data centers and network equipment.

More importantly, Google has clearly stated that capital expenditure will "significantly increase" in 2026, demonstrating strong confidence in the long-term prospects of AI. Ashkenazi emphasized, "We will continue to invest funds to support AI growth, and we expect capital expenditure to remain high in the coming quarters."

These investments are yielding returns. Nearly half of Google's code has been generated by AI, significantly enhancing internal productivity. The sales team has seen productivity increase by over 10% after using AI, resulting in hundreds of millions of dollars in incremental revenue. The customer support department, powered by Gemini-driven solutions, has managed over 40 million customer interactions this year.

The most pressing question for investors is: can such a large-scale investment bring corresponding returns? From the third-quarter performance, the answer is affirmative. AI revenue from cloud business has reached tens of billions of dollars per quarter, with demand exceeding supply. Jefferies analyst Brent Hill commented, "Google is monetizing AI faster than expected, with tangible benefits in both cloud and advertising businesses."

However, the massive investment also brings cost pressure. Depreciation expenses in the third quarter reached $5.6 billion, a year-on-year increase of 41%. Coupled with the European Commission's $3.5 billion antitrust fine, the company's operating profit margin was 30.5% (33.9% excluding the fine). But in the long run, Google's investment in AI infrastructure not only serves its own products but also creates value for external customers through cloud services, forming a virtuous cycle.

Below is the full transcript of Google's earnings call, translated by AI tools:

Alphabet Q3 2025 Earnings Call

Event Date: October 29, 2025

Company Name: Alphabet

Event Description: Q3 2025 Earnings Call

Source: Alphabet

Meeting Presentation Section

Host Opening:

Welcome everyone. Thank you for waiting to participate in Alphabet's Q3 2025 earnings call. At this time, all participants are in listen-only mode. After the speakers have finished, we will enter the Q&A session. (Host instructions)

Now I will turn the call over to today's speaker, Head of Investor Relations Jim Friedland. Please go ahead.

Jim Friedland (Head of Investor Relations):

Thank you. Good afternoon, everyone, and welcome to Alphabet's Q3 2025 earnings call. Joining us today are Sundar Pichai, Philipp Schindler, and Anat Ashkenazi.

Now, I will quickly go over the safe harbor statement. Some of the statements we make today regarding our business, operations, and financial performance may be considered forward-looking statements. These statements are based on current expectations and assumptions but are subject to many risks and uncertainties. Actual results may differ significantly. Please refer to our 10-K and 10-Q filings, including the risk factors section. We have no obligation to update any forward-looking statements.

In this call, we will present both GAAP (Generally Accepted Accounting Principles) and non-GAAP financial metrics. The reconciliation of non-GAAP to GAAP metrics is included in today's earnings press release, which has been distributed and is available to the public on our investor relations website at abc.xyz/investor. Unless otherwise noted, our comments will be based on year-over-year comparisons.

Now, I will turn the call over to Sundar.

Sundar Pichai (CEO):

Thank you, Jim. Good afternoon, everyone, and thank you for joining us. This has been an exceptionally strong quarter for Alphabet, with double-digit growth across every major part of our business. We are seeing AI now delivering tangible business results across the company. We delivered our first-ever $100 billion quarter. Five years ago, our quarterly revenue was $50 billion. Since then, we have doubled our revenue figures, and we have firmly entered the era of generative AI. At the same time, we have built for long-term growth and diversified through successful businesses like cloud computing, YouTube, and subscriptions.

Our growth momentum is strong, and we are rapidly rolling out products. A few examples: our proprietary model, Gemini, is now processing 7 billion tokens per minute through direct APIs from customers. The Gemini application now has over 650 million monthly active users, with query volume tripling compared to Q2. The cloud business has also seen another outstanding quarter of accelerated growth, with AI revenue being a key driver. Cloud business backlog orders increased by 46% quarter-over-quarter, reaching $155 billion Our paid subscriptions have surpassed 300 million, primarily driven by the growth of Google One and YouTube Premium.

Today, I will discuss our progress on the AI full-stack approach and then share highlights from Search, Cloud, YouTube, and Waymo. Just a reminder, our full-stack approach encompasses AI infrastructure, world-class research including models and tools, and products and platforms that bring AI to people around the globe.

First is AI infrastructure. Our extensive and reliable infrastructure supports all Google products, forms the foundation of our tech stack, and is a key differentiator. We are deploying state-of-the-art chips in data centers, including GPUs from our partner NVIDIA and our own purpose-built TPUs. Moreover, we are the only company that offers a wide selection of both.

As we announced yesterday at NVIDIA GTC, we are now delivering new A4X Max instances powered by NVIDIA GB300 to cloud customers. Our highly sought-after TPU product lineup is led by our seventh-generation TPU Ironwood, which will soon be fully available. We are investing in TPU capacity to meet the enormous demand from customers and partners, and we are excited to see Anthropic recently share plans to access up to 1 million TPUs.

Second is world-class AI research, including models and tools. Our models are world-leading. Gemini 2.5 Pro, VO Genie 3, and the viral nanobanana are all best-in-class. Over 230 million videos have been generated using VO3, and more than 13 million developers are building with our generative models. We look forward to releasing Gemini 3 later this year. Our research leadership is advancing the next generation of cutting-edge technologies. Last week, we announced a significant breakthrough with our Willow quantum chip, running algorithms 13,000 times faster than one of the best supercomputers in the world. And the results are verifiable, paving the way for future practical applications. Speaking of quantum, let me congratulate our Chief Scientist of Quantum Hardware, Michel Devoret. He received the Nobel Prize in Physics for early research conducted in the 1980s. It’s incredible that three current Google employees have won the Nobel Prize in two years.

Third is our products and platforms. We are bringing AI to more people and developers than anyone else. In July, we announced processing 980 trillion tokens monthly across all interfaces. We are now processing over 1.3 quadrillion tokens monthly, growing more than 20 times in a year, which is remarkable. This quarter, we took significant steps to reimagine Chrome as an AI-driven browser through deep integration with Gemini, and more agent features are coming soon in AI mode in Search. In August, at the Made by Google event, we launched the Pixel 10 series devices. They are among the first devices powered by our most powerful chip, Tensor G5, designed specifically to run Gemini They are the best-rated devices we have ever had. Last week, we launched Android XR, a new operating system developed in collaboration with Samsung's Galaxy XR device. It brings new ways of use for headsets and glasses, with Gemini at its core.

Now turning to the highlights of search. AI is driving a moment of expansion in search. As people learn what our new AI experiences can do, they are increasingly returning to search. Search and its AI experiences are designed to highlight the web, sending billions of clicks to websites every day. In the second quarter earnings call, we shared that overall queries and commercial queries continue to grow year-over-year. This growth rate improved in the third quarter, primarily driven by our AI investments in search, most notably AI Overview and AI Mode. Let me delve into the momentum we are seeing.

As we shared before, AI Overview is driving meaningful query growth. This effect was even stronger in the third quarter as users continued to realize that Google can answer more questions. Particularly encouraging is that this effect is more pronounced among younger people. We also saw a positive response to AI Mode from users. In the U.S., since its launch, we have seen strong and sustained week-over-week usage growth, with query volume doubling this quarter. In the past quarter, we launched AI Mode in a record number of 40 languages globally at a rapid pace. It now has over 75 million daily active users, and we rolled out over 100 improvements to the product in the third quarter, at a very fast speed. Most importantly, AI Mode has been driving growth in total search query volume. Philipp will discuss monetization in detail and share how AI helps people connect with businesses and shop through search.

Next is Google Cloud. Our complete enterprise AI product portfolio is accelerating growth in revenue, operating margin, and backlog. In the third quarter, customer demand strengthened in three areas. First, we are signing new customers faster. The number of new GCP customers increased by nearly 34% year-over-year. Second, the deals we are signing are larger. The number of deals over $1 billion we signed in the first three quarters of this year exceeds the total from the previous two years. Third, we are deepening relationships. Over 70% of existing Google Cloud customers are using our AI products, including Banco BV, Best Buy, and Fair Price Group.

As we scale, we are diversifying our revenue. Currently, 13 product lines have annual operating revenues exceeding $1 billion. We are improving operating margins by building highly differentiated products using our own technology. This deep product differentiation starts with our AI infrastructure. We have a decade of experience building AI accelerators and today offer the broadest array of chips. This leadership is winning customers like HCA Healthcare, LG AI Research, and Macquarie Bank. This is also why nine out of the top ten AI labs choose Google Cloud

We are also the only cloud service provider offering our own leading generative AI models, including Gemini, Imagen, Veo, Chirp, and Lyria. Adoption rates are accelerating rapidly. In the third quarter, product revenue generated from our generative AI models grew by over 200% year-on-year. In the past 12 months, nearly 150 Google Cloud customers have used our models to process approximately 1 trillion tokens for various applications. For example, WPP is creating marketing campaigns that improve efficiency by up to 70%. Swarowski's email open rates increased by 17%, and the speed of campaign localization accelerated by 10 times.

Earlier this month, we launched Gemini Enterprise, a new entry point for workplace AI, and we are seeing strong adoption of agents built on this platform. The packaged enterprise agents in Gemini Enterprise are optimized for various fields, highly differentiated, and provide significant out-of-the-box value to customers. We already have over 2 million subscribers across 700 companies.

Next is YouTube. In the living room space, according to Nielsen, YouTube has maintained the number one position in streaming watch time in the U.S. for over two consecutive years. Last month marked the first time YouTube became an NFL live broadcaster. This exclusive global live stream from Brazil attracted over 19 million fans and set a new record for simultaneous viewers on YouTube Live. YouTube continues to perform well. In the U.S., short videos now generate more revenue per hour watched than traditional streaming on YouTube.

In our made-on-YouTube initiative, we launched many AI-driven features to help creators enhance their creative capabilities and grow their businesses. AI is now streamlining the entire content creation workflow, from generative video tools and more efficient editing to AI-driven insights that help creators optimize their channels. We are also using AI to expand monetization by automatically identifying products to make their videos more shoppable. Philipp will discuss this in detail.

Finally, Waymo. Next year, Waymo plans to open services in London, and they are working to bring services to Tokyo. They also announced expansions to Dallas, Nashville, Denver, and Seattle, and received permission for fully autonomous operations at San Jose and San Francisco airports. Autonomous driving tests continue to scale in New York City. The new Waymo for Business allows companies to use Waymo as a work transportation option. We launched Waymo Teen Accounts in Phoenix this summer. We are pleased to see steady usage growth, and feedback from teens and their parents has been very positive. Waymo's growth and momentum are strong, and 2026 will be an exciting year.

Overall, this has been a milestone quarter. The outstanding work of our team is driving comprehensive growth momentum, and our leadership in AI has us well-prepared for future opportunities. I want to thank all our partners and employees for their hard work and excellent performance in the third quarter Speaking of which, I will hand the microphone over to Philipp.

Philipp Schindler (Senior Vice President and Chief Business Officer):

Thank you, Sundar. Hello everyone. I will quickly introduce the performance of Google Services this quarter and then organize the rest of my remarks around the significant progress we have made in search, advertising, YouTube, and partnerships.

Google Services revenue this quarter was $87 billion, a year-over-year increase of 14%, primarily driven by accelerated growth in search and YouTube, partially offset by a year-over-year decline in network revenue.

To further supplement our performance, search and other businesses grew by 15%, mainly driven by growth across all major verticals, with retail and financial services contributing the most. YouTube performed similarly across verticals. Its advertising revenue grew by 15%, primarily driven by direct response, followed by brand advertising.

Starting with search and other revenue, over $56 billion was generated this quarter. As Sundar mentioned, AI is driving expansion moments and changing the way people use Google Search. Our investments in new AI experiences, such as AI Overview and AI Mode, continue to drive overall query growth (including commercial queries), creating more monetization opportunities. These AI experiences are enhancing the way people connect with businesses and shop through search.

We recently added shopping features in AI Mode, which now help people shop conversationally in search, and we have expanded the try-on feature to more clothing items, now available to anyone in the U.S. Finally, we are making it easier for consumers to benefit from offers through new loyalty products, such as organic results and personalized annotations on ads.

From a monetization perspective, businesses can now leverage our most powerful AI search experiences. With our state-of-the-art AI models, we can understand and predict intent like never before, unlocking new business pathways, providing valuable new consumer connections, and helping us monetize more efficiently.

Launched globally in September, AI Max in Search has been used by hundreds of thousands of advertisers and is currently the fastest-growing AI search advertising product. In just the third quarter, AI Max unlocked billions of new queries. By providing the most relevant ads across various interfaces and matching advertisers with additional queries they had not previously reached, AI Max helps advertisers discover new customers at the exact moment they need their products or services. For example, Kayak aimed to increase conversions while maintaining OS goals. After launching AI Max in Search, they improved conversion value by 12% in early tests.

We continue to inject generative AI capabilities at every step of the marketing process. We launched Imogen in our asset studio and product studio to help businesses produce more and better creative. In measurement, we enriched the models supporting MRIdian (our marketing mix model) by adding more variables, and more granular reporting in PMAX is making bidding more effective Financial services company SoFi has been using PMax to achieve its ambitious growth targets, helping to drive a 39% year-on-year increase in its conversion volume.

Turning to YouTube, we see accelerated revenue growth, with our recommendation system driving strong watch time growth in our key monetization areas such as short videos and the living room. As we leverage the Gemini model, we have seen further improvements in discovery. In direct response, we are excited about the revenue growth we are seeing, particularly with small and medium advertisers adopting DemandGen. We have also improved DemandGen's performance through over 100 releases, helping advertisers using goal-based bidding on YouTube increase conversion value by more than 40%. The retail vertical continues to lead our growth on YouTube, with DemandGen helping us further monetize shopping-related categories.

From the living room perspective, this is our long-term bet, with more and more advertisers adopting interactive direct response ads, a format that has surpassed $1 billion in annual revenue run rate globally. For our audience, we continue to provide fans with more access to sports content while leveraging YouTube's best product innovations and creator-led content. Sundar mentioned that we have expanded our partnership with the NFL to exclusively live stream NFL games globally for the first time. Brands love this opportunity, and we sold out all advertising inventory within weeks.

From the creator perspective, a key force behind the thriving YouTube creator economy is the collaboration between creators and brands. Direct links to transactions, websites, and interchangeable brand snippets in both short and long videos will soon help creators showcase the immense value they provide to brands. Thanks to our collaboration with Dude Perfect, Comcast Xfinity drove an 8% lift in searches, with ad recall on short videos being 34% higher than other Xfinity ads. At the same time, it reduced the cost per lift user by 50% compared to the next most efficient ad.

We continue to invest in AI capabilities to help creators enhance their creative abilities and grow their businesses. With Veo 3 integration and voice-to-song features, creators can move faster from ideas to iterations, and new channel insights help them better understand performance.

Ending with YouTube's subscription products, we are also seeing strong momentum, with YouTube Music, Premium, and YouTube TV experiencing robust growth. We are also applying Gemini internally to help us serve customers with greater speed, intelligence, and efficiency. Our sales team uses the ad-knowledge-rich Gemini to streamline customer interactions. This has improved productivity by over 10%, generating hundreds of millions in incremental revenue and allowing salespeople more time to engage with more customers in a deeper and more strategic way. In our customer support department, Gemini-driven solutions have managed over 40 million customer interactions this year to date and resolved hundreds of thousands of customer inquiries; we are just getting started

As always, I will conclude with the progress we see in our partnerships, where customers leverage the advantages and breadth of Google products to accelerate their transformations. Revolut, a global financial services company, utilizes Google Cloud's Vertex AI platform and Gemini model to help support its advanced customer service chatbot, develop new hyper-personalized financial products, and provide predictive insights. Revolut is also increasing its presence on YouTube, using Veo 3 to create personalized creatives, making Google a key advertising partner for growth and launches in new markets.

Finally, I want to thank Google employees around the world for their contributions to our success, and as always, thank our customers and partners for their continued trust. Of course, a big thank you to all of you as we celebrate the 25th anniversary of Google Ads. Anat, over to you.

Anat Ashkenazi, Chief Financial Officer:

Thank you, Philipp.

Unless I specify otherwise, my remarks today will focus on year-over-year performance for the third quarter.

I will first present the overall performance of Alphabet, then discuss the performance of each business segment, and finally talk about our outlook for the fourth quarter of 2025.

We achieved outstanding results in the third quarter, continuing the strong momentum of the year, with double-digit revenue growth in several areas:

Search and YouTube advertising, subscription business, platforms and devices, and Google Cloud.

The company's total revenue reached $102.3 billion, a year-over-year increase of 16%, or 15% when adjusted for constant currency.

Total cost of revenue was $41.4 billion, an increase of 13% year-over-year.

Of this, technology-related costs (Tech) were $14.9 billion, an increase of 8%.

Other cost of revenue was $26.5 billion, an increase of 16%, primarily due to rising content acquisition costs for YouTube, followed by increases in depreciation and other operational expenses for technical infrastructure.

Total operating expenses increased by 28%, reaching $29.7 billion.

Research and development (R&D) expenses grew by 22%, primarily driven by compensation and depreciation costs related to artificial intelligence (AI).

Sales and marketing expenses remained roughly flat compared to last year.

General and administrative expenses (G&A) rose significantly, mainly due to the $3.5 billion fine imposed by the European Commission,

which has been mentioned in our earnings press release.

Operating profit grew by 9% this quarter, reaching $31.2 billion,

with an operating margin of 30.5%

Excluding the impact of EU fines, operating profit increased by 22%, with a profit margin of 33.9%.

The improvement in operating profit margin was mainly due to strong revenue growth and ongoing cost efficiency improvements, but was partially offset by significant increases in legal fines and depreciation expenses.

Other income and expenses amounted to $12.8 billion, primarily from unrealized gains on non-public equity investments.

Net profit grew by 33% to $35 billion, with earnings per share (EPS) increasing by 35% to $2.87.

Free cash flow for the third quarter was $24.5 billion, totaling $73.6 billion over the past 12 months.

The strong performance of free cash flow was attributed to:

Robust operating cash flow and recent changes in tax policy, which affected the timing of R&D expense recognition and the pace of asset depreciation.

However, this portion of earnings was partially offset by higher capital expenditures (CapEx).

At the end of the quarter, the company held $98.5 billion in cash and marketable securities.

Performance by Business Segment

Google Services revenue grew by 14% to $87.1 billion, reflecting strong performance from Google Search, YouTube ads, and subscription services.

Google Search and other advertising revenue increased by 15% to $56.6 billion, marking another strong quarter with advertising spending continuing to grow across all major industries, with retail and financial services contributing the most.

YouTube advertising revenue grew by 15% to $10.3 billion, driven primarily by direct response ads, followed by brand advertising.

Network advertising revenue was $7.4 billion, a year-on-year decrease of 3%.

Subscription, platform, and device revenue grew by 21% this quarter to $12.9 billion, benefiting from strong growth in YouTube Premium and Google One subscribers.

Operating profit for the Google Services segment increased by 9% to $33.5 billion.

The operating profit margin decreased year-on-year to 38.5%, primarily due to the impact of EU fines, which were fully accounted for in the Google Services segment despite strong revenue growth and ongoing cost efficiency improvements.

Google Cloud Segment

This segment continued to perform very strongly this quarter.

The cloud business continues to benefit from our enterprise-focused AI-optimized technology stack,

which includes self-developed TPU chips and industry-leading AI models

Cloud business revenue grew 34% in the third quarter, reaching $15.2 billion, with growth primarily driven by GCP (Google Cloud Platform), whose growth rate far exceeds that of the overall cloud business.

The growth of GCP comes from enterprise-level AI products, which currently contribute billions of dollars in revenue each quarter.

We achieved strong growth in both enterprise AI infrastructure and AI solutions, benefiting from high demand for our industry-leading models (including Gemini 2.5).

Core GCP also made a significant contribution to growth, while Workspace achieved double-digit growth,

benefiting from a dual increase in average revenue per user (ARPU) and user count.

Operating profit for the cloud business grew 85%, reaching $3.6 billion, with the operating profit margin increasing from 17.1% in the same period last year to 23.7%.

Margin expansion was primarily driven by strong revenue performance and improved cost efficiency, partially offset by increased costs associated with technology infrastructure usage, including depreciation expenses and other operating expenditures such as energy.

Google Cloud's backlog grew 46% quarter-over-quarter and 82% year-over-year, reaching $155 billion at the end of the third quarter.

This growth was mainly driven by strong demand for enterprise AI.

As Sundar previously mentioned, in the first nine months of 2025, the number of $1 billion contracts signed by the cloud division is greater than the total for the past two years combined.

Other Bets

Other business revenue was $344 million, with an operating loss of $1.4 billion.

We continue to allocate more resources to businesses like Waymo, as we believe these areas have the potential to create significant long-term value.

Capital Expenditures and Shareholder Returns

Capital expenditures (CapEx) for the third quarter were $24 billion.

The vast majority of this investment was directed towards technology infrastructure, with approximately 60% allocated to servers and 40% to data centers and networking equipment.

In the third quarter, we returned $11.5 billion to shareholders through stock buybacks and paid $2.5 billion in dividends.

Outlook: Fourth Quarter 2025

Next, I would like to discuss the key factors that will impact our performance in the fourth quarter and update our capital expenditure outlook for this year.

First, in terms of revenue, we are pleased with the continued momentum of the company's overall business.

At current exchange rate levels, we may see a positive impact from foreign exchange (FX tailwind) in the fourth quarter, but exchange rate fluctuations may still affect the final results

By department:

In Google Services, the year-on-year comparison of advertising revenue will be negatively impacted by the peak of advertising spending for the 2024 U.S. presidential election, especially on YouTube.

In Cloud, the demand for our products remains very strong, as evidenced by the acceleration in revenue growth and a sequential increase of $49 billion in cloud order backlog in the third quarter.

In GCP, we are seeing strong demand for enterprise-level AI infrastructure (including TPU and GPU), high demand for AI solutions (including Gemini 2.5 and other models), and continued growth in core GCP services (such as cybersecurity and data analytics).

As I mentioned in the previous earnings call, while we have been working hard to expand capacity and accelerate server deployments and data center construction, we expect to remain in a supply-demand tight environment in the fourth quarter of 2025 and 2026.

Investment and Spending Outlook

We will continue to invest actively to meet the strong demand from cloud customers and seize growth opportunities across the company's business lines.

We now expect capital expenditures for 2025 to be between $91 billion and $93 billion, up from the previous expectation of $85 billion.

Please note that timing differences in cash payments may cause fluctuations in reported figures.

Looking ahead to 2026, we expect capital expenditures to increase significantly and will provide more details in the fourth quarter earnings call.

On the expense side: As I mentioned earlier, our large-scale investments in technology infrastructure will continue to put pressure on the profit and loss statement (P&L), primarily reflected in higher depreciation expenses and data center operating costs (such as energy costs).

In the third quarter, depreciation increased by $1.6 billion year-on-year, reaching $5.6 billion, with a growth rate of 41%.

Given the overall increase in capital expenditures, we expect the growth rate of depreciation to accelerate slightly in the fourth quarter.

Secondly, we expect sales and marketing expenses to be more concentrated at the end of the year, partly for product launches and holiday season promotions.

The third quarter was a very strong quarter.

We are excited about the pace of adoption of AI products, thanks to rapid innovation and excellent execution by the team.

This has translated into strong growth in search, YouTube advertising, subscription platforms and devices, and cloud business, allowing us to achieve a quarterly revenue milestone of over $100 billion for the first time.

Now, Sundar, Philipp, and I will answer your questions together.

Q&A Session

Moderator: Thank you. (Instructions) Our first question comes from Brian Nowak of Morgan Stanley. Please go ahead

Brian Nowak, Analyst: Okay. Thank you all for answering my questions. The first question might be for Philipp or Sundar. It's about smart agent e-commerce and smart agent travel. There has been a lot of discussion outside of Wall Street suggesting that the monetization rate for e-commerce might be lower than that of search. So the question is, as you transition to a more smart agent world, what factors are you most focused on to ensure a smooth transition for search business and advertisers? The second question, Sundar, is about Waymo. How far are we from integrating Waymo into the core Gemini functionality? Can we leverage platform user data, such as where I want to go, which hotel to stay at, which airport to use, and then integrate that into Waymo so that users can book Waymo using their profiles? How long will this take to achieve? What do we need to do?

Philipp Schindler, Senior Vice President and Chief Business Officer: Hi, Brian, great questions. This is all still in the early stages, but we believe these experiences are actually a complement to how people seek information. It helps us answer complex questions for people, assists them in completing tasks, and also helps businesses in the process. We are developing various experiences across multiple key verticals, such as travel, business, shopping, and so on. We are very focused on creating a seamless user experience while also integrating different partner ecosystems in a way that creates value for our partners.

By the way, we are also working closely with many partners through cloud services to help them improve their experiences. Let me delve into shopping; we have actually been very proactive in using AI to enhance the shopping experience. As you know, we launched a more visual experience in AI models, providing people with a more intuitive conversational shopping method. You can now simply describe what you are looking for, just like chatting with a friend, and we will show you visual shopping results.

Then we are considering building the future of smart agent shopping, which must benefit both users and businesses. You know in AIO (AI Overview), we also launched a new checkout feature that allows shoppers to purchase products on merchant websites using smart agent AI, and so on. We have partnered with PayPal to help merchants build smart agent commerce experiences. We also have new open protocols for transactions between agents, and so on.

Sundar Pichai, CEO: Brian, regarding Waymo, that's a great question. I've been thinking about the exact same topic. I plan to meet with the team in a few weeks to review this matter. Look, this is an exciting time; Waymo is clearly scaling up, especially in 2026. I think, as you mentioned, the possibilities of Gemini, particularly the multimodal experiences and services like YouTube, present a real opportunity to significantly improve the in-car experience, which is definitely something we are excited about, and you will certainly see updated experiences in 2026

Brian Nowak, Analyst: Great. Thank you both.

Moderator: The next question comes from Doug Anmuth at JP Morgan. Please go ahead.

Doug Anmuth, Analyst: Thank you for taking my question. Philipp, perhaps you could elaborate on some of the drivers behind the strong performance in core search. Specifically, when you consider the AI overview and AI models, we know query growth is accelerating, but can you help us understand what happens in these AI-driven search formats in terms of queries to clicks per query, conversion rates, and pricing?

Then Anat, can you talk about what opportunities you see in the core cost base to make room for the rapid growth of infrastructure and depreciation in the future? Thank you.

Philipp Schindler, Senior Vice President and Chief Business Officer: Let me first give you some context in verticals. In the third quarter, search and other revenues again grew across all major verticals, as we mentioned, driven by retail and financial services. Healthcare also contributed to the growth. Our new AI experiences you mentioned—the overview and AI models—continue to drive overall query growth, including commercial queries, really creating more opportunities for monetization. The AI overview is scaling and serving our entire user base. We have now expanded to over 2 billion users, and we are continuing to expand advertising in the AI overview to more English-speaking countries, covering desktop, mobile, and other platforms.

As I shared earlier, for the overview, even at our current advertising benchmark levels below and within AI responses, overall, we see monetization rates roughly the same. So over time, we are excited about the opportunities for richer experiences in AI models and AI overviews, essentially opening up richer ad placement opportunities. I think I mentioned in a previous call that we manage the business to deliver great results for users and attractive returns on investment for advertisers. We are not really managing based on paid clicks and cost per click targets. But as you will see in the 10-Q report, paid clicks grew 7% year-over-year, and cost per click also grew 7% year-over-year.

Anat Ashkenazi, Chief Financial Officer: Doug, regarding your question about where we can see more efficiency and productivity opportunities, I think you've heard me say before that this is not a one-time effort but a continuous way we manage the business. The key is that the higher the productivity we drive across the business, the more we can invest in business growth, and obviously continue to drive improvements in the P&L.

Some of these areas are things you've heard us talk about before, such as slowing the growth rate of employee numbers, optimizing our real estate footprint, but at the same time, as we invest more in technology infrastructure, ensuring we optimize these builds and the overall technology infrastructure we have. You know we have built many data centers ourselves, so they are optimized, and we ensure they are built in the most efficient way

Sundar mentioned in a previous conference call the productivity that AI brings to Google. For example, nearly half of the code is now generated by AI. This is one way we are leveraging AI to further enhance productivity across the business. Clearly, we always ensure that we achieve the right economic benefits and the correct value of the content we provide when delivering services or products.

So—a good example is Shorts, which has a lower revenue share compared to long video streams, helping to improve our gross margins. So this is the effort we are undertaking—I've mentioned in the past that with increased capital expenditures, we face pressure on depreciation. So we—we are working throughout the organization to ensure we operate the business in the most disciplined and efficient manner while continuing to invest for future growth.

Doug Anmuth, Analyst: Thank you both.

Host: The next question comes from Goldman Sachs' Eric Sheridan. Please go ahead.

Eric Sheridan, Analyst: Thank you very much for taking my question. If I could, I’d like to ask two questions. Sundar, when you think about the custom chip work across the organization, can you talk about the opportunities you see with each generation of custom chips, including in driving operational efficiency internally and the potential opportunities for increased monetization externally?

The second question is for Philipp. Clearly, we can see the YouTube ad revenue numbers in the earnings report. Can you talk about the scaling of the YouTube subscription service and how these two parts together form an interesting framework to think about YouTube's monetization—becoming increasingly a hybrid model of ads and subscriptions? Thank you.

Sundar Pichai, CEO: Eric, overall, I would say we see tremendous demand for our AI infrastructure products, including TPU-based and GPU-based solutions, which have been key drivers of our growth over the past year. I think looking ahead, we continue to see very strong demand, and we are investing to meet that demand.

I do believe that the differentiation of Google Cloud largely lies in the fact that we are— we have taken a comprehensive and deep full-stack AI approach. So we—this is indeed reflected, right? We are the only truly hyperscale cloud provider building products based on our own models. And we are also highly differentiated on our own technology. So back to your question, I think this indeed gives us the opportunity to continue driving growth and operational margins in the cloud business as we have in the past, while I believe the infrastructure part of our business will also become a growth driver in the future from a revenue perspective.

Philipp Schindler, Senior Vice President and Chief Business Officer: Regarding the second part of your question, if we take a step back, we often describe YouTube's business as a flywheel. Clearly, it all starts with creators, and we have made significant investments in this area to make YouTube a place that creators truly call home This is a very important area and is the top priority. Of course, there are also the viewers; YouTube has billions of logged-in users every month, and people watch billions of hours of video every day. We talked about how our recommendation system drives strong growth in watch time, etc.

So in terms of monetization, I want to say that YouTube's business is truly driven by a dual-engine monetization strategy that combines advertising and the growing subscription services. This quarter, both YouTube advertising and subscriptions achieved strong growth. Looking at YouTube Music and Premium, users bring more value to creators, music, media partners, and YouTube itself on average, even more than ad-supported users. In other words, on average, the gross profit generated by YouTube Music and Premium subscribers is significantly higher than their gross profit when they are only ad-supported users. Fans come from all over the world, and as you know, the engagement generated through ads and subscriptions has produced YouTube's revenue and funded the creators I mentioned at the beginning, which in turn drives more views and engagement, and so on. This is the flywheel effect. So our priority continues to be this growth cycle. We are satisfied with this dual-engine monetization strategy.

Host: The next question comes from Mark Shmulik at Bernstein. Please go ahead.

Mark Shmulik, Analyst: Yes, thank you for taking my question. Sundar, with the strong adoption of Gemini, AI models, and AI overview among the user base, are there any notable significant differences in user behavior and engagement depth across the entire Google ecosystem?

Then Philipp, I know we ask this question almost every quarter, but I'm curious, given some of the adoption you've seen in AI overview and models, how do you view the evolution of search economics—with higher commercial query volumes and total queries—and how does it compare to the incremental costs of providing those results? Thank you.

Sundar Pichai, CEO: Mark, I think it's clear that AI overview is a natural part of the Google experience. So engagement is very, very high. I would say with AI models, you have different user groups. Some are casual users trying it out, but there is also a core group that really loves AI models and is passionate about it. So you see early adopters resonating very strongly with the product and actively seeking it out. So I think that's the difference I want to emphasize.

For Gemini, there is also a highly engaged user group actively seeking out the product, etc. But overall, I think the trend is that we do see a group of early adopters in each of these use cases, and then more and more people join, and those who are using it continue to use it more over time and report high user satisfaction. So I would say that the foundational product metrics look quite encouraging now

Philipp Schindler, Senior Vice President and Chief Business Officer: Regarding the second part of your question, I believe we have already covered the core developments. As I mentioned earlier, for the AI overview, even at our current advertising benchmark levels, right, whether above, below, or internally within AI responses, overall, we see the monetization rate is roughly the same, which is a good benchmark for further innovation. We have talked about this. We are excited about the direction of this development.

In terms of AI models, we are testing AI models, and before further expansion, we will continue to test and learn. So this ties in with the overall development of commercial queries that we mentioned. I think we are in a good position in this regard. You can also think that for queries that historically have had poor monetization effects, we see potential opportunities here, and you can obviously imagine that we can build this through smart AI integration.

Host: Our next question comes from Michael Nathanson of MoffettNathanson. Your line is now open.

Michael Nathanson, Analyst: Thank you. I have two questions, one for Philipp and one for Anat. Philipp, it’s clear that when people use AI models, the query lengths are much longer. Can you talk about how this longer length might affect your ability to drive (inaudible), and what benefits you might see from the longer query lengths in the early stages? And then Anat, you came to Alphabet from a pharmaceutical company, and you’ve been there for over a year. Can you talk about how you internally assess the return on invested capital (ROIC)? And what early signs do you see that make you believe these expenditures are indeed driving better long-term returns? Thank you.

Philipp Schindler, Senior Vice President and Chief Business Officer: Listen, as shared, the AI model now has over 75 million daily active users in the U.S., and since its launch, we have seen usage grow strongly year-over-year every week, with query volume doubling this quarter. As I also mentioned, we are testing ads within the AI model. Before further expansion, we will continue with final testing. It’s too early to go into any details about the tests.

Michael Nathanson, Analyst: Okay.

Anat Ashkenazi, Chief Financial Officer: Yes. Regarding the ROIC question and how we view the overall business, where we see encouraging early signs. First, I want to say this is not just early signs, as we have clearly seen returns in our cloud business. You’ve heard us talk about how we have already generated billions of dollars in revenue from AI this quarter. But overall, we have a rigorous framework and approach to assess these long-term investments, which are designed to do two things. One is to ensure we are building a resilient growth trajectory for the company while also meeting our customers' needs in the near and medium term So we look at it across the entire business. We assess the potential returns of each investment, whether in the cloud business— I think this is more apparent externally because you see the revenue generated and the fact that we currently cannot meet customer demand. Our demand exceeds supply. In our advertising business, you see that we are investing in transforming search, as you heard from Philipp about AI Veo and AI models. So we are excited to see how our investments help—how investors help advertisers, and YouTube, where it helps support recommendations. So when we make long-term investment decisions, we go through a very rigorous evaluation process, assessing the possible returns and the timeframe in which we will see that return, to give us a high level of confidence, and then make those long-term investments. So it’s a very rigorous approach.

Host: Our next question comes from Ross Sandler of Barclays. Your line is now open.

Ross Sandler, Analyst: Great. Historically, about 20% of Google search queries are commercial, and you’ve mentioned several times in this call how the AI overview expands the breadth of queries. Can you talk about how new monetization aspects like AI Max could potentially increase the percentage of commercial queries?

Philipp Schindler, Senior Vice President and Chief Business Officer: So look, AI Max, I mentioned it in a previous call, it enhances advertisers' ability to target a broader range of queries. Additionally, there’s the question of whether queries are really increasing with AI models, Sundar actually talked about this and mentioned the opportunities he sees here. So I think it’s important to distinguish between these two things. Personally, I also believe—this is what I said in my last statement—that over time, there’s an opportunity to take those queries that are not entirely commercial but may have adjacent commercial relationships and essentially expand them into more attractive advertising products while really creating a very interesting user experience.

Sundar Pichai, CEO: Yes. The only thing I would add is, stepping back, I think the AIO view and AI models are significantly improving search. We can see it in user satisfaction, user quality, all metrics, and they are essentially universal. They apply to the universality of human needs. So I think we are seeing it in breadth. Therefore, over time, this will naturally also apply to commercial categories.

Host: Our next question comes from Ken Gawrelski of Wells Fargo. Your line is now open.

Ken Gawrelski, Analyst: Thank you very much. I have two questions. First, it’s becoming increasingly clear that all new models, whether in Google’s Gemini overview, AI overview, AI models, or even ChatGPT, are expanding the addressable market for search-like behavior participation. Can you talk about what makes you believe it will also expand the addressable market for marketing activities and the overall revenue associated with that behavior? This is the first question. The second question is, when you consider AI models, AI overview, and traditional Google search, how do you see it—do you see a world where all of these exist in 12 to 24 months? Will users ultimately choose the mode they want? Will the algorithm choose the mode? Can you talk about how you think this will develop in the next 12 to 24 months? Thank you very much.

Sundar Pichai, CEO: Ken, thank you. I think this is a dynamic moment, and I believe we are meeting people at this moment with what they are trying to do. Clearly, search is evolving, and you know, between the AIO view and AI models, I think we are able to provide people with that range of experiences at this moment. Over time, you would expect us—you can expect us to make the experience simpler, just like we did with general search years ago, where we might have done technical searches, video searches, etc., and then we integrated them as general search. So you will see that kind of evolution, but I think we want to be sensitive to ensure we are doing well in meeting the content users are looking for. I think Gemini enables us to build a more personalized, proactive, and powerful AI assistant for that moment. I think having both search and Gemini as interfaces allows us to truly meet all of users' needs—but over time, we will thoughtfully look for opportunities to improve the experience for users. For the first part, I would broadly say, as—I do think we have been saying this is an expanding moment, and we see people engaging more. I think as they do that, for users, part of that information, those journeys are essentially commercial. So I expect that will happen over time as well.

Host: Our last question comes from Justin Post at Bank of America Merrill Lynch. Your line is now open.

Justin Post, Analyst: Great. Just a couple of questions. Sundar, I think you mentioned that Gemini 3 is coming soon. Perhaps you could comment on the pace of innovation in frontier models? Is there still a lot of innovation, or has it slowed down? Then you mentioned signing many large deals for the cloud business over the past nine months, which is great. Have there been any changes in the economics of those deals, in terms of long-term profitability, that we should be aware of? Thank you.

Sundar Pichai, CEO: Thank you, Justin. First, regarding the pace of development of frontier models. Listen, I think both things are true at the same time. I am impressed with the speed at which the team is executing and the speed at which we are improving these models. But it is also true that with each previous model, you are trying to be better than we were, and it is becoming increasingly capable. So I think the pace is increasing, but sometimes we need time to roll out a noticeably improved model. So I think that might take a bit longer. But I do think the potential pace is incredible, and I am excited about the release of Gemini 3.0 later this year In terms of the cloud, what I mean is that I will — I will point out as a sign of momentum that I believe the number of deals we signed this year in the first three quarters exceeding $1 billion is greater than in the previous two years. So we are definitely seeing strong momentum, and we are executing quickly. In terms of long-term economic benefits, I want to say that we are a full-stack AI player, and we are developing highly differentiated products based on our own technology, which I believe will help us drive a good trajectory here, as you have seen over the past few years.

Justin Post, Analyst: Great. Thank you.

Host: Thank you. That concludes today's Q&A session. I would like to turn the meeting back to Jim Friedland for any further comments.

Jim Friedland, Head of Investor Relations: Thank you all for joining us today. We look forward to speaking with you again on the Q4 2025 conference call. Thank you, and have a great evening.

Host: Thank you, everyone. That concludes today's conference call. Thank you for your participation. You may now disconnect