Q2 2025 Alphabet Inc Earnings Call

July 23, 2025

[music].

Mhm.

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Okay.

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No.

Sure.

Yes.

[music].

Sure.

[music].

Sure.

Yes.

Hey, Brian.

Thank you.

Jamie.

Yes.

Thanks.

Sure.

Okay.

Sure.

Yes.

Happy birthday.

[music].

Okay.

Uh huh.

Continued to perform well.

AI mode has launched in the U S and India and is going well.

[music] I don't know if I wanted to die.

While AI or views now has over 2 million monthly users across more than 200 countries and territories and 40 languages.

Trying to find it.

Im questioning.

So Jean.

Then something shifts.

Speaker Change: I'll give some more details on search in a moment.

And I'm not guiding anymore.

[music] and.

Speaker Change: We continue to see strong performance in Youtube as well as subscriptions, reflecting great momentum across these high growth businesses.

All of the pieces.

Scott.

Okay.

Sure.

Speaker Change: In the U S short now on as much revenue per war Char that's.

And I hope she was pretty clear in my head.

I see.

Speaker Change: Traditional in stream on Youtube and.

Right.

As a possibility.

Speaker Change: And in some countries it now even exceeds in stream straight.

It looks like you guys are traveling through dimensions.

Speaker Change: Got it myself and my characters in these different world.

Cloud had another great quarter of strong growth in revenues backlog and profitability.

Speaker Change: And it's almost coming to life on their own even though I know I'm in control of that scenario.

Speaker Change: Annual revenue run rate is now more than $50 million.

Speaker Change: It feels like it's almost building upon itself at some point.

Speaker Change: We are seeing significant demand for our comprehensive AI product portfolio.

Speaker Change: You could have an infinite amount of ending to your story.

Speaker Change: Of course, the law possible because of the long term investments we have made in our differentiated full stack approach to AI.

Speaker Change: Uh huh.

Speaker Change: Work is in.

Speaker Change: Great great. Thanks.

Speaker Change: Hey, infrastructure World Class research models, and tooling and our products and platforms that brings AI to people all over the world.

Speaker Change: Great.

Speaker Change: Okay.

Speaker Change: Got it.

Speaker Change: It grows next journey for these vibrant and compete.

Speaker Change: I'll briefly touch on the AI stack before turning to quarterly highlights.

Speaker Change: I know, it's forcing it.

Speaker Change: First AI infrastructure.

Speaker Change: I'm just finding it.

We operate the leading global network of AI optimized data centers and cloud regions.

Speaker Change: That's when I know I'm in the right place.

Speaker Change: [music].

Speaker Change: We also offer the industry's widest range of Cpus, and Gpus, along with storage and software.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: That's why nearly all G&A I unicorns use Google cloud.

Speaker Change: Okay.

Speaker Change: Sure.

Speaker Change: It's why in growing number, including leading AI research labs like safety Super intelligence, and physical intelligence, New CPU specifically.

Speaker Change: So to recap.

Speaker Change: You'll be optimizing our Google AD campaign for the summer collections, yet on and making that summer collections performance no problem. So can you double check the product in June.

Speaker Change: Our AI infrastructure investments are crucial to meeting the growth in demand from cloud customers.

Speaker Change: Let's turn which marketing channels are driving the highest converting users engage with our content for the moment.

Speaker Change: Next World Class, AI research, including laurels and tooling.

Speaker Change: In the past four weeks.

Speaker Change: Oh, Thank you program.

Speaker Change: We continue to expand our Gemini two five family of hybrid reasoning models, which provide industry leading performance in nearly every major benchmark.

Speaker Change:

Speaker Change: Hi.

Speaker Change: Okay.

Speaker Change: In addition to improving our popular work Hawks, mono slash intermune and extremely fast flash.

Speaker Change: Okay.

Speaker Change: Flashlight version.

Speaker Change: Thank you.

Speaker Change: We achieved Goldman 11 performance in the international map Olympiad, using an advanced version of Gemini and deeply.

Speaker Change: Okay.

Speaker Change: Thank you.

Speaker Change: Okay.

Speaker Change: Can't wait to bring deep thing to users soon.

Speaker Change: Sure.

Okay.

Speaker Change: There are some of the best models available today at every price point or two.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: 2.5 models have been a catalyst for growth.

Speaker Change: Okay.

Speaker Change: 9 million developers have now been for Gemini.

Speaker Change: <unk>.

Speaker Change: Okay.

Speaker Change: Also want to mention view III, our state of the art video generation model.

Speaker Change: Thanks, Dan.

Speaker Change: Okay.

Speaker Change: It's been a vital head and people sharing clips created in the Gemini App.

Speaker Change: Next question.

Speaker Change: Okay.

Speaker Change: And with our new AI filmmaking too slow.

Speaker Change: Yes.

Speaker Change: Cool.

Speaker Change: Okay.

Speaker Change: Since may or 70 million videos have been generated using meal III.

Speaker Change: Okay.

Speaker Change: And we recently introduced a feature in the Gemini App to turn photos intermediates, which people absolutely love it.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Thanks.

Speaker Change: Okay.

Speaker Change: It's also rolling out the Google photos users starting today.

Speaker Change: Okay.

Speaker Change: Third our products and platforms, we are bringing AI to all our users and partners through surfaces like workspace growing at all.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: The growth in usage has been incredible.

Speaker Change: Yes.

Speaker Change: Thanks.

Speaker Change: I own Mi, we announced that we processed 480 trillion monthly tokens across her surfaces.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Since then we have doubled that number now processing over 980 trillion monthly tokens a remarkable increase.

Speaker Change: Okay.

Speaker Change: Thank you.

Speaker Change: Okay.

Speaker Change: Got it.

Speaker Change: The Gemini App now has more than 450 million monthly active users and we continue to see strong growth and engagement daily requests growing over 50% from Q1.

Speaker Change: Yes.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Got it.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: In June alone or 50 million people use to AI powered meeting notes and gloomy.

Speaker Change: One of these ads has malware.

Speaker Change: Powered by V O three our new short video product in workspace called Google Meds reached nearly 1 million monthly active users.

Speaker Change: You tell me, where all the unicorns today give me extra color gentlemen.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: Very optimistic.

Speaker Change: Next month at Samsung Galaxy, Unpacked, the announced new Android and AI features.

Speaker Change: Do you like pizza.

Speaker Change: It can't be hurt.

Speaker Change: Okay.

Speaker Change: Available on Samsung's latest devices.

Speaker Change: Kenneth you may not be able to call, which app is a trap.

Speaker Change: And we are really pleased with the growth in subscriptions, which got a boost from our Google AI pro another truck plants.

Speaker Change: Okay.

Chuck: Thank you Chuck.

Speaker Change: Yes.

Speaker Change: Now some key highlights from search cloud Youtube and memo for the quarter.

Speaker Change: We plan to execute.

Speaker Change: Next time stay safe with Google play.

First up.

Speaker Change: How are you finding the festival.

Speaker Change: Credibly exciting moment for such.

Speaker Change: Couple of it I'm in my element.

Speaker Change: We see AI powering and expansion and how people are searching for and accessing information unlocking completely new kinds of questions you can ask Google.

Speaker Change: So now why everyone always complain about the weather.

Speaker Change: Well first of all commenting essential.

Speaker Change: Definitely.

Speaker Change: Well not dress why are you here.

Speaker Change: Or all queries and commercial quantities on search continued to grow year over year.

Speaker Change: So the free love.

Speaker Change: Our new AI experience has significantly contributed to this increase in usage.

Bob: Thanks, Bob.

Josh: I'm not really hit the music MAU checkers realigned in the restoration Mad dog and letting everyone know about it on social media is this your first time Josh No. It's also commercial now I was hearing 67, one Falcons breath plate for 14 hours straight cosmic event as it had been hit with kids.

Speaker Change: We are also seeing the AI features cost users to search more.

Speaker Change: As they learn that search can meet more of their needs.

Speaker Change: That's especially true for younger users.

Speaker Change: Let me go deeper on our new search experiences.

Josh: How naive now we always bring them it's important to expose the poet you said from a young age. So how did you get at that stage.

Speaker Change: We know how popular AI all views are because they are now driving or 10% more countries globally.

Speaker Change: It's a VIP boss actually made.

Speaker Change: I'm basically the Bj's PFS for life, you've got everybody.

Speaker Change: The types of queries that show though.

Speaker Change: This growth continues to increase overtime.

Speaker Change: We're excited for that lineup.

Speaker Change: Well I'm going to start towards the back the last time I was in the past.

Speaker Change: AI all views are now powered by Gemini 2.5, delivering the fastest ara sponsors in the industry.

Speaker Change: Someone's eye out.

Speaker Change: For a time to make some noise.

Speaker Change: We also saw strong growth in the use of multimodal search, particularly in a combination of land so circling to search together with AI all of us.

Speaker Change: Yeah.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Thank you.

Speaker Change: Yes.

Speaker Change: Can you say the stage for about that.

Speaker Change: This growth was most pronounced among younger users.

Speaker Change: No.

Speaker Change: Our new end to end AI search experience AI mode continues to receive very positive feedback, particularly.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: Particularly for longer and more complex questions.

Speaker Change: Sure.

Speaker Change: Okay.

Speaker Change: It's still rolling out, but already has over 100 million monthly active users in the U S and India.

Speaker Change: Okay.

Speaker Change: Oh God.

Speaker Change: Okay.

Speaker Change: We plan to keep enhancing the AI won't experience for users by shipping great features fast.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: That includes our advanced research tool deep search and more personalized responses.

Speaker Change: Okay.

Speaker Change: Great.

Speaker Change: Next to Google cloud.

Speaker Change: Yes.

Speaker Change: We see strong customer demand driven by our product differentiation.

Speaker Change: Okay.

Speaker Change: Thank you.

Speaker Change: Comprehensive <unk> product portfolio.

Speaker Change: Okay.

Speaker Change: For Stat show. This one the number of deals over $250 million doubling year over year.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Oh God.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Two in.

Speaker Change: In the first half of 2025, we signed the same number of deals over $1 million and we did in all of 2024.

Speaker Change: Yes.

Speaker Change: Okay.

Yes.

Speaker Change: Okay.

Speaker Change: Three.

Speaker Change: Right.

Speaker Change: Number of new GCB customers increased by nearly 28% quarter over quarter.

Speaker Change: Sure.

Speaker Change: Yes.

Speaker Change: Our more than 85000 enterprises, including EMEA image Salesforce.

Speaker Change: Which of these parties that show that data, whether ICF O'neill. The article mentioned that the arms crossed codes can look confident and relaxed on a podium acre project are cool and collected winter now thanks, Kevin.

Speaker Change: Singapore's DBS back now been with Gemini.

Speaker Change: Driving a 35 X growth in Gemini usage year over year.

Kevin: Thanks, Craig.

Speaker Change: Armando has served on our AI infrastructure, which offers industry, leading performance and cost efficiency for both training and inference.

Speaker Change: Okay.

Speaker Change: Hi.

Speaker Change: Sure.

Speaker Change: Yes.

pixel: Okay pixel. So remember last time, we talked about how people think I'm doing the same thing as you, but it's all just like a crazy coincident totally crazy well, what's even crazier as I just announced all of these new features than people think I'm doing it again, no way way, so like I announced live translation.

Speaker Change: Along with our AI accelerators, we introduced new innovations in storage, including any of that cash, which improves in France, Nate and see by up to 70%.

Speaker Change: Rapid storage, which delivers a <unk> improvement in latency compared to leading hyperscale.

Speaker Change: In addition, we have optimized AI software packages, including by Hitachi Jacks with full open source supports or various AI training and having demands.

pixel: For text messages right and it turned out I had that four years ago, Yeah, Crazy coincidence, and I announced hold assist and it turned out I had that five years ago, Yeah. So wild and hear this I announced call screening and it turned out I had that seven years ago, Yeah, I mean, what are the chances.

Speaker Change: They won't say integrating AI agents deeply into each of our cloud products.

Speaker Change: Mayfair is leveraging our databases integrated with AI to streamline data pipelines.

pixel: So crazy so crazy unbelievable totally unbelievable.

Speaker Change: Deliver more personalized customer experiences.

Speaker Change: Landfill is leveraging our Gemini powered data agents and big Quarry to review and act on product feedback more quickly.

pixel: So what are you working on for pixel Tien just like out of curiosity.

Harlan: Harlan is using our Gemini powered threat intelligence and security operations agents.

Speaker Change: Oh hi.

pixel: Okay.

Speaker Change: They improved cyber security cab.

pixel: Uh huh.

Speaker Change: Cap Gemini.

Speaker Change: Our AI software engineering agents to deliver higher quantity software faster by automating tasks.

pixel: No.

pixel: Okay.

pixel: Sure.

Speaker Change: Generation contesting.

pixel: [music].

Speaker Change: And BBVA, SaaS, Gemini and Google Workspace, assuming employees.

Speaker Change: Nearly three hours per week by automating representative tasks.

Speaker Change: Now rolling it out to 100000 employees globally.

pixel: Okay.

Yeah.

Speaker Change: We are also focused on building a flourishing AI agent ecosystem.

pixel: Yes.

pixel: Okay.

Speaker Change: We introduced an open source engine development, which now has over 1 million downloads in less than four months.

pixel: [music].

Speaker Change: We also introduced agent space, an open and interoperable enterprise chat search and agent platform.

pixel: Can you.

pixel: To make a bunch of like two studies or goes explode out of my mouth.

Speaker Change: Gordon Foodservice is bringing agents space to its U S employees, which is enabling better more efficient decision making.

pixel: And updated.

pixel: Yes.

pixel: Yeah.

pixel: Yes.

Speaker Change: And over 1 million subscriptions have been booked for agent space.

pixel: Okay, what do we built that Christian.

Speaker Change: Ahead of its general availability.

pixel: There is another 30 ideas for you.

Speaker Change: Turning now to Youtube Nielsen data shows Youtube muscle and screaming watch time for over two years.

pixel: <unk>.

pixel: Yes.

pixel: Yeah.

Speaker Change: A generation that grew up with Youtube on their devices and now increasingly watching their favorite creators and content on their TV.

pixel: Alright, great.

pixel: It is.

pixel: Okay.

pixel: We're easy to find.

Speaker Change: That includes millions of sports fans too.

pixel: Got it.

Speaker Change: Globally, they can see more than 40 million hours of sports content on Youtube annually.

pixel: This is Ed.

pixel: Okay.

pixel: <unk>.

Speaker Change: And in September we'll stream their first first Friday game of the season life from Brasil plural.

pixel: Okay.

pixel: Alright.

pixel: TVA is your favorite sports can last.

Speaker Change: From sports to shocks me now average over 200 million daily views on Youtube shorts.

pixel: So you can easily watch the games you will Jason you still here sorry, Rick.

pixel: Okay.

Speaker Change: AI is helping improve our recommendations and auto dumping.

pixel: Yeah.

pixel: [music].

Speaker Change: [noise] translates to better times for creators and brands by dramatically increasing the potential audiences. They can reach.

pixel: But again.

pixel: It's John <unk>.

pixel: Additionally, our guidance.

Speaker Change: Today, we began rolling out a whole raft of new AI tools for creators on Youtube shops.

pixel: You bet.

pixel: Thank you.

Speaker Change: Finally, Youtube continues to diversify its subscription options recently, expanding its premium light offerings to 15, new countries with more to come.

pixel: Yes.

pixel: Yeah.

pixel: Thank you Megan.

pixel: Thank you.

pixel: Yes.

pixel: You may begin.

Maimone: And lastly, Maimone continues to scale and expand to safely serve more writers in more places last month mainland launched in Atlanta more than doubling its Austin Sonoma century, and expand in Los Angeles, and San Francisco Bay area countries by approximately 50%.

pixel: Alex did I do to make it.

Speaker Change: To make it stronger consider adding more triangles to the design.

pixel: Yeah.

pixel: Yes.

pixel: Okay.

pixel: Yes.

pixel: <unk>.

pixel: This is Brian.

Speaker Change: <unk> also launched Din of pounds, starting with Ryan S age 14 to 17 in Phoenix.

pixel: Thanks Niccolo.

pixel: Okay.

pixel: Brad.

Maimone: Overall, great momentum here.

pixel: Thank you.

pixel: Okay.

Maimone: One driver is now autonomously, driven or 100 million miles on public roads.

pixel: Oh My God.

pixel: Thanks, so much.

pixel: Excuse me.

pixel: Hi, Michelle.

Maimone: And the team is testing across more than 10 cities this year, including New York and Philadelphia.

pixel: Okay.

pixel: Gotcha.

pixel: Yes.

pixel: Okay.

Maimone: So writers in all 10 in the future.

pixel: Thank you.

pixel: No.

pixel: Oh My God.

Maimone: As I said, a standout quarter a big thank you as always to our employees and partners for an amazing Q2.

pixel: Hi.

pixel: Uh huh.

pixel: You may begin.

pixel: Yes.

pixel: <unk> de La <unk>.

Maimone: Over to you.

pixel: One in terms of.

Speaker Change: Thanks, So Dara Hello, everyone.

pixel: Next caller.

Speaker Change: I'll quickly cover performance for Google services for the quarter Vince structure of the rest of my remarks around the great progress, we're delivering across search ads Youtube and partnerships.

pixel: This is Ted Ted was born in 1998, the year of the first Google search and as a teenager whenever Ted was looking for Google helped him find it changed.

Speaker Change: Services revenues were <unk> 83 billion for the quarter up 12% year on year, driven by strong growth in search and Youtube.

pixel: Video.

Brett: My life is Brett.

Speaker Change: We offset by year on year decline in network revenues.

Brett: So we're not as year after year there was always some new question on his mind.

Speaker Change: Some further color to our results the 12% increase in search and other revenues was led by growth across all verticals with the largest contributions from retail and financial services.

Brett: That is 26 now as life isn't so simple Fortunately Google still is why is this not working.

Speaker Change: Youtube saw similar performance across verticals, it's 30% growth in advertising revenues was driven by direct response, followed by Brett.

Brett: Even when these questions are a lot of questions in one.

Speaker Change: Starting with search and other revenues, which delivered over 54 billion in revenue for the quarter.

Brett: But something cool happening Tonight in the city and so it gets me home in a reasonable time.

Speaker Change: Shifts like AI or what propels our industry forward.

Brett: [music].

Speaker Change: <unk> native multi modality is helping bring the offline audio and visual world back into the OLED world, creating a number of opportunities for search let me share a few examples.

Brett: Which is how said found something they didn't even know he was looking for.

Brett: Turns out that might split question.

Speaker Change: [noise] take original course hoogland searches so one of the fastest growing core types of search it grew 70% since this time last year.

Lee: Lee you can just ask Google.

Brett: Sure.

Brett:

Brett: Okay.

Speaker Change: The majority of lids searches are incremental and we're seeing healthy growth for shop inquiries using lifts.

Brett: Okay.

Brett: [laughter].

Speaker Change: And you can obviously take this to the next level by moving from image to video based capabilities like search Mike.

Brett: Infinite possibilities for slow manner of magic is that.

Brett: AI mode is the biggest revolution into the search engine was incentive you tell Gemini exactly what you want and they built it for you.

Speaker Change: And then Theres circle to search, which is known over 300 billion Android devices.

Speaker Change: But adding capabilities to help people explore complex topics.

Jim: Coding with Jim and I to five approach eight is awesome project Mariner is going to change how we use our browsers.

Speaker Change: Follow up questions without switching jobs.

Speaker Change: For example, gamers can though you circle to search while playing mobile games.

Speaker Change: Hi ages it gets things done for your notebook Lm's mine has completely transformed so why is this.

Speaker Change: Overview or outsource.

Speaker Change: And just last week, we brought a new egencia capability directly into search for all U S use us with AI powered calling to local businesses.

Jim: Person.

Jim: And Mark just your shadow.

Jim: Uh huh.

Jim: Okay.

Speaker Change: Finally shopping where in Q2, we introduced a virtual try on experience for search lapsed users in the U S.

Jim: Hey, guys.

Jim: How we fight fires generative media is expanding the boundaries of creativity.

Speaker Change: Now people can try billions of clothing products of themselves virtually.

Jim: This isn't just another tool is a game changer.

Speaker Change: Early results and engagement have been extremely positive, particularly with Gen Z users and will be bringing this functionality to all U S use us admittedly.

Jim: Right.

Jim: The potential is almost limitless.

Jim: Okay.

Jim: Yes.

Jim: Yeah.

Jim: [music].

Speaker Change: All of these innovations are opening up a completely new ways for people to use technology, bringing the offline world into the online world in ways that simply have not been possible before.

Speaker Change: Add in our amazing AI translation capabilities, and just imagine the possibilities people can access more content that the language businesses large and small international or local can reach even more customers.

Speaker Change: I'm excited about how all of these elements will come together and the opportunities ahead of us of search.

Speaker Change: Moving to ads or strategy to reinvent the entire marketing process with AI is delivering value for our customers and our business.

Jim: Okay.

Jim: Yeah.

Jim: Okay.

Speaker Change: Last quarter, we introduced a amex in search of new suite of airport features an existing search can page.

Jim: Yes.

Jim: Sure.

Speaker Change: Advertisers that activate a IMAX and search campaigns typically see 14% more converts.

Jim: Okay.

Jim: Yeah.

Jim: Yes.

Speaker Change: All media buy smart bidding exploration the biggest update to bidding strategy in a decade brings better performance to advertise us by allowing them to bid on a less obvious but potentially higher value course more often.

Jim: Okay.

Jim: Yeah.

Jim: Okay.

Speaker Change: Campaigns, using smart bidding exploration, a 19% increase in conversions on average.

Speaker Change: Welcome everyone. Thank you for standing by for the alphabet second quarter 2025 earnings Conference call.

Speaker Change: Imagine continues to drive revenue growth deliver measurable impact for our customers.

Speaker Change: At this time all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session.

Speaker Change: As an example, deepak etsy resale clothing marketplace use the shorts, only dementia and campaigns to drive new customers to the site.

Speaker Change: To ask a question during the session you will need to press star one on your telephone I would now like to hand, the conference over to your speaker today, Jim Friedland head of Investor Relations. Please go ahead.

Speaker Change: Shorts drove 80% buyer bread loaf of Doubleclick rich versus benchmarks.

Speaker Change: Accretive we launched S studio using our latest models to help businesses large and small generate creative assets.

Speaker Change: Thank you good afternoon, everyone and welcome to the alphabet second quarter 2025 earnings conference call with US today are Sundar Pichai Philipp Schindler and did not Ashkenazi now I'll quickly cover the safe Harbor.

Speaker Change: Small businesses benefit from top quality assets of deployment scaling capabilities, but larger businesses can go faster for proof of concept to launch and resize at lower cost.

2 million advertisers no use google's AI powered as a generation tools to run that.

Speaker Change: Some of the statements that we make today regarding our business operations and financial performance may be considered forward looking.

Speaker Change: 50% increase over this time last year.

Speaker Change: Such statements are based on current expectations and assumptions that are subject to a number of risks and uncertainties.

Speaker Change: Turning to Youtube, where we saw continued strong revenue growth driven by direct response, followed by Brett.

Speaker Change: Actual results could differ materially.

Brett: Youtube creators are connected to the global zeitgeist, a trusted by the audiences like no others.

Speaker Change: Please refer to our forms 10-K, and 10-Q, including the risk factors, we undertake no obligation to update any forward looking statement.

Brent: As part of Brent connect we launched creator partnership hub, which allows brands to more easily work with the right creators.

Speaker Change: During this call we will present, both GAAP and non-GAAP financial measures a reconciliation of non-GAAP to GAAP measures is included in today's earnings press release, which is distributed and available to the public through our Investor Relations website located at ABC Dot Xyz forward Slash investor.

Brett: Into cultural moments.

Brett: We introduced view three photo to video and generate a effects to schwartz, making content creation easier and offering unexplored avenues for creativity.

Brett: We're seeing both the volume as the price of ads and Schwartz increase particularly in developed markets.

Speaker Change: Our comments will be on year over year comparisons unless we state otherwise and now I will turn the call over to Sundar.

Brett: Based nature of the product allows for more at opportunities on average and this growth is further supported by AD formats native to shorts AI powered at accretive Recessing tools improved AD targeting at the Reits enjoy engagement.

Sundar Pichai: Thanks, Jim Good afternoon, everyone.

Sundar Pichai: Q2 was a standout quarter for us with robust growth across the company.

Brett: Mcdonald's USA harnessed the influence of Youtube creators to ignite awareness, so the minecraft movie deal.

Sundar Pichai: As you saw in Io, we are leading in frontier of AI and shipping and then incredible pace.

Brett: Leveraged Youtube shorts partnership adds to increase its reach generate against three three times Harvey through rate that the industry benchmark.

Sundar Pichai: AI is positively impacting every part of the business driving strong momentum.

Speaker Change: Lee on CTV, where the momentum continues.

Sundar Pichai: This quarter, such delivered double digit revenue growth.

Speaker Change: According to the Gate report by Nielsen's Youtube has been number one in streaming watch time in the U S for more than two years hitting a record high of 12, 8% of total TV viewing at June 2025.

Sundar Pichai: Our new search features continuing to perform well.

Sundar Pichai: <unk> has launched in the U S and India and is going well.

Sundar Pichai: AI or views now has over 2 million monthly users.

Speaker Change: In the past 12 months Youtube ads U see TV screens drove over 1 billion conversions we.

Sundar Pichai: More than 200 countries and territories and 40 languages.

Speaker Change: We saw strong growth in retail thanks to CTV shopping ads, which allows viewers to shop directly via QR codes.

Sundar Pichai: Again, some R&D dance on search in a moment.

Sundar Pichai: We continue to see strong performance in Youtube as well as subscriptions.

Speaker Change: US leverage direct marketing opportunities.

Speaker Change: As always I'll wrap up with the momentum we're seeing in partnerships, where our customers increasingly recognize the strength and breadth of google's ability to help them transform their business with AI.

Sundar Pichai: Reflecting great momentum across these high growth businesses.

Sundar Pichai: In the U S. Sharps now on as much revenue firewall char.

Speaker Change: For instance, the new partnership with Paypal will improve the digital commerce experience for their merchants and customers.

Sundar Pichai: Our national in stream on Youtube.

Sundar Pichai: And in some countries is now even exceeds in stream stream.

Speaker Change: Paypal will expand its Google cloud adoption for AI, driven recommendations transaction processing and it had security the.

Sundar Pichai: Cloud had another great quarter with strong growth in revenues backlog and profitability.

Speaker Change: The partnership also broadens the availability and functionality of Paypal as a payment services and capabilities across a range of Google products.

Sundar Pichai: The annual revenue run rate is now more than $10 billion.

Sundar Pichai: Significant demand for our comprehensive product portfolio.

Speaker Change: In closing I'd like to thank googlers everywhere for their contributions and commitment to our success and to our customers and partners for their continued trust.

Sundar Pichai: Of course this is all possible because of the long term investments we've made in our differentiated full stack approach to AI.

Speaker Change: Over to you.

Sundar Pichai: Yes.

Sundar Pichai: Infrastructure World Class research models, and tooling and <unk>.

Speaker Change: Thank you Philip My comments will focus on year over year comparisons for the second quarter, unless I state otherwise I.

Sundar Pichai: Products and platforms and brings AI to people all over the world.

Sundar Pichai: I'll briefly touch on the ice pack before turning to quarterly highlights.

Speaker Change: I will start with the results at the alphabet level and will then cover our segment results I'll end with some commentary on our outlook for the second half of 2025.

Sundar Pichai: Huh.

Sundar Pichai: Infrastructure.

Speaker Change: We operate the leading global network of AI optimized data centers and cloud regions.

Speaker Change: We had another solid quarter in Q2 cancer.

Speaker Change: Also off on the industry's widest range of Cpus and Gpus.

Speaker Change: Consolidated revenue of $96 4 billion increased by 14% or 13% in constant currency.

Speaker Change: With storage and software.

Speaker Change: That's why nearly all journey.

Speaker Change: Search and Youtube advertising subscription platforms and devices and Google cloud each had double digit revenue growth this quarter, reflecting strong momentum across the business.

Speaker Change: Once he is Google cloud and it's why I'm growing number, including leading AI research labs like say, it's Super intelligence and fix it.

Speaker Change: Intelligence use CPU specifically.

Speaker Change: Total cost of revenue was $39 billion up 10%.

Speaker Change: AI infrastructure investments are crucial to meeting the growth in demand from cloud customers.

Speaker Change: <unk> was $14 7 billion up 10% and other cost of revenue was $24 $3 billion up 10% with the increase primarily driven by content acquisition costs largely for Youtube followed by depreciation.

Speaker Change: Next World Class AI research, including models and tooling.

Speaker Change: We continue to expand our Gemini two five family of hybrid reasoning models, which provide industry leading performance in nearly every major benchmark.

Speaker Change: In addition to improving our popular word Cox model slash the immune and extremely fast.

Speaker Change: Total operating expenses increased 20% to $26 $1 billion. The biggest driver of growth was expense for legal and other matters, which reflected the impact of 1.4 billion dollar charge related to a settlement in principle of certain legal matters R&D.

Speaker Change: <unk> motion.

Speaker Change: We achieved Goldman to a level of performance in the international math Olympiad, using an advanced motion of Gemini even deeply.

<unk> made to bring deep thing to use as soon.

Speaker Change: R&D investments increased by 16%, primarily driven by increases in compensation and depreciation expenses.

Speaker Change: We have some off the best models available today at every price point.

Speaker Change: To find more of those have been a catalyst for growth.

Speaker Change: Sales and marketing expenses increased 5%, primarily reflecting an increase in advertising and promotional expenses.

Speaker Change: 9 million developers have now been for Gemini.

Speaker Change: I also want to mention view III, our state of the art video generational.

Speaker Change: Operating income increased 14% this quarter to $31.3 billion and operating margin was 32, 4%.

Speaker Change: It's been a vital head and people sharing clips create any of the Gemini app and with our new AI from making too slow.

Speaker Change: Since may or 70 million videos have been generated using meal III.

Speaker Change: Operating margin benefited from strong revenue growth and continued efficiencies in our expense base, partially offset by the legal charge I mentioned earlier and a significant increase in depreciation expense.

Speaker Change: And we recently introduced a feature in the Gemini after current photos, Intermedius, which people absolutely love it.

Speaker Change: It is also rolling out to Google photos users starting Tonight.

Speaker Change: Net income increased 19% to $28 $2 billion and earnings per share increased 22% to $2.31.

Speaker Change: Doug our products and platforms, we are bringing AI to all our users and partners through surfaces like workspace growing at all.

Speaker Change: We generated free cash flow of $5 $3 billion in the second quarter.

Speaker Change: The growth in usage has been incredible.

Speaker Change: I own me, we announced it would be processed 480 trillion one thing opens up cross have surfaces.

Speaker Change: And $66 7 billion for the trailing 12 months.

Speaker Change: Free cash flow in the second quarter was affected by a sizable sequential increase in capex and cash tax payments as we make federal tax payments in the second quarter for both Q1 and Q2.

Speaker Change: Since then we have doubled that number now processing over 980 trillion monthly tokens a remarkable increase.

Speaker Change: And gentlemen, I am now has more than 450 million monthly active users.

Speaker Change: We ended the quarter with 95 billion in cash and marketable securities.

Speaker Change: We continue to see strong growth and engagement daily request growing over 50% from Q1.

Speaker Change: Turning to segment results, Google services revenues increased 12% to $82 $5 billion, reflecting strength in Google search and Youtube advertising and subscription.

Speaker Change: In June alone or 50 million people use to AI powered meeting notes and Google meet.

Speaker Change: Pardon My V O T. Our new short video product in workspace called Google maps reached nearly 1 million monthly active users.

Speaker Change: Google search and other revenues increased by 12% to $54 $2 billion.

Speaker Change: Next month at Samsung Galaxy, Unpacked, the announced new Android and AI features.

Search and other revenues delivered growth across all verticals with the largest contributions coming from retail and financial services.

Speaker Change: Alright available on Samsung's latest devices.

Speaker Change: And we are really pleased with the growth in subscriptions, which got a boost from our Google AI pro another truck plants.

Speaker Change: Youtube advertising revenues increased 13% to $9 8 billion driven by direct response advertising followed by brand.

Speaker Change: Now some key highlights from search cloud Youtube and memo for the quarter.

Speaker Change: Network advertising revenue of 7.4 billion were down 1%.

Speaker Change: Oh stop is an incredibly exciting moment for such.

Speaker Change: Subscription platforms and devices revenues increased 20% to $11.2 billion, primarily reflecting growth in subscription revenues. This growth was driven by Youtube subscription offerings, followed by Google one with the growth in paid subscriptions being the biggest driver of revenue growth.

Speaker Change: We see AI powering and expansion and how people are searching for.

Speaker Change: Assessing information unlocking completely new kinds of questions you can ask Google.

Speaker Change: Boral Grace.

Speaker Change: Quarry Nissan's Hajj continuing to grow year over year.

Speaker Change: And our new AI experience has significantly contributed to this increase in usage.

Speaker Change: Google's service operating income increased 11% to $33.1 billion.

Speaker Change: We are also seeing the AI features cost users to search more.

Speaker Change: Operating margin was flat year on year at 41% as healthy revenue growth and continued efficiency in our expense base or partially offset by the legal charge I mentioned earlier.

Speaker Change: They learn that search can meet more of their needs.

Speaker Change: That's especially true for younger users.

Speaker Change: Let me go deeper on our new search experiences.

Speaker Change: Turning to the Google Cloud segment, which delivered very strong results this quarter.

Speaker Change: We know how popular AI all of US are because they are now driving or 10% more countries globally.

Speaker Change: Revenues increased by 32% to $13 $6 billion in the second quarter, reflecting growth in G. C. P across core and AI products at the rate that was much higher than clouds overall revenue growth.

Speaker Change: Types of queries that showed them and this growth continues to increase over time.

Speaker Change: All of US are now powered by Gemini two five in the morning, the fastest AI responses in the industry.

Speaker Change: And growth in Google Workspace, driven by an increase in average revenue per seat and the number of seats group.

Speaker Change: We also saw strong growth in the use of multimodal approach, particularly in the combination of land so something to search together with AI automobiles.

Speaker Change: Google Cloud operating income increased to $2 8 billion and operating margin increased from 11, 3% to 20.7%.

Speaker Change: This growth was most pronounced among younger users.

Speaker Change: Our new AI search experience AI mode continues to receive very positive feedback.

Speaker Change: The expansion in cloud operating margin was driven by strong revenue performance and continued efficiencies in our expense base, partially offset by higher technical infrastructure usage costs, which includes the associated depreciation.

Speaker Change: Particularly for longer and more complex questions.

Speaker Change: It's still rolling out, but already has over 100 million monthly active users in the U S and India.

Speaker Change: As we ramp our AI investments, we continue to focus on driving improvements in productivity and efficiency to offset growth in technical infrastructure related expenses, particularly from higher depreciation.

Speaker Change: We plan to keep enhancing the AI them on experience for users by shipping great features fast.

Speaker Change: That includes our advanced research tool deep search and more personalized responses.

Speaker Change: Next Google cloud.

Speaker Change: Google Cloud backlog increased 18% sequentially in Q2, and 38% year over year, reaching $106 billion at the end of the quarter.

Speaker Change: We see strong customer demand.

Speaker Change: Product differentiation.

Speaker Change: Comprehend some AI product portfolio for <unk>.

Speaker Change: That show this one the number of deals over $250 million doubling year over year.

Speaker Change: This growth was driven by strong demand for our products and services from both new and existing customers.

Speaker Change: Two in.

Speaker Change: In the first half of 2025, we signed the same number of deals over $1 million and opinion and all of 'twenty 'twenty four.

Speaker Change: As Sundar mentioned, we have signed multiple billion dollar plus deals in the first half of the year.

Speaker Change: Aster other bets in the second quarter revenue were $373 million in operating loss was $1 2 billion.

Speaker Change: Three the number of new GCB customers increased by nearly 28% quarter over quarter.

Speaker Change: Within other bets, we're allocating more resources to businesses like way more where we see opportunities to create additional value.

Speaker Change: Our more than 85000 enterprises, including EMEA much sales force.

Speaker Change: Singapore's DBS back now been with Gemini.

Speaker Change: With respect to Capex in the second quarter, our Capex was $22 $4 billion. The vast majority of our Capex was invested in technical infrastructure with approximately two thirds of investments in servers and one third in data centers and networking equipment.

Speaker Change: Driving a 35 X growth in Gemini usage year over year.

Speaker Change: Our waterworks has served on our AI infrastructure, which offers industry, leading performance and cost efficiency for both training and inference.

Speaker Change: Along with our AI accelerators, we introduced new innovations in storage.

Speaker Change: In Q2, we returned capital to shareholders through repurchase of stock of $13 $6 billion and dividend payments of $2 $5 billion.

Speaker Change: Including any of that cash, which improves in France named M C by up to 70%.

Speaker Change: And rapid storage, which delivers a fire mix improvement and latency.

Speaker Change: Turning to our outlook I would like to provide some commentary on several factors that will impact our business performance in the second half of 2025 as.

Speaker Change: <unk> the leading hyperscale.

Speaker Change: In addition, we have optimized AI software packages, including by Hitachi on attacks that full open so supports or various AI training, that's having demands.

Speaker Change: As well as an updated outlook for full year Capex.

Speaker Change: First in terms of revenues, we're pleased with the overall momentum we're seeing across the business at.

Speaker Change: We are also integrating AI agents deeply into each of our cloud products.

Speaker Change: At current spot rates, we could see a tailwind to revenue in Q3, however volatility in exchange rates could affect the impact of FX on Q3 revenue.

Speaker Change: Mayfair is leveraging our databases integrated with AI to streamline data pipelines.

Speaker Change: As far as segments and Google services advertising revenues in the second half of 2025 would be affected by the following the continued lapping of the strength, we experienced in financial service verticals throughout 2024.

They buy more personalized customer experiences.

Speaker Change: <unk> is leveraging our Gemini APA data agents and greater <unk>.

Speaker Change: On product feedback more quickly.

Speaker Change: Carlin is using our Gemini powered intelligence and security operations agents.

Speaker Change: And year over year comparisons will be negatively impacted by the strong spend on U S election in the second half of 'twenty 'twenty, four particularly uneasy tube.

Speaker Change: The improved cyber security.

Speaker Change: Cap Gemini is utilizing our AI software engineering agents to deliver higher quantity software faster by automating tasks.

Speaker Change: In cloud as I mentioned the demand for our products is high as evidenced by the continued revenue growth and the cloud backlog of $106 billion.

Speaker Change: Old generation contesting.

Speaker Change: And BBVA, SaaS, Gemini and Google Workspace, assuming employees.

Speaker Change: Well, we have been working hard to increase capacity and have improved the pace of server deployment, we expect to remain in a tight demand supply environment going into 2026.

Speaker Change: Nearly three hours per week by automating representative tasks.

Speaker Change: Now rolling it out to 100000 employees globally.

Speaker Change: We are also focused on building a flourishing AI agent ecosystem.

Speaker Change: Moving to investments given the strong demand for our cloud products and services, we now expect to invest approximately $85 billion in Capex in 2025.

Speaker Change: We introduced an open source engine development, which now has over 1 million downloads in less than four months.

Speaker Change: We also introduced agent space, an open and interoperable enterprise chat search and agent platform.

Speaker Change: From a previous estimate of $75 billion.

Speaker Change: Our updated outlook reflects additional investment in servers, the timing of delivery of servers and an acceleration in the pace of data center construction, primarily to meet cloud customer demand.

Gordon: Gordon this is bringing agents space to its U S employees.

Gordon: Is enabling better more efficient decision, making.

Gordon: And over 1 million subscriptions have been booked for agent space.

Speaker Change: Looking out to 2020 six we expect a further increase in capex due to the demand, we're seeing from customers as well as growth opportunities across the company.

Gordon: Ahead of its general availability.

Gordon: Turning now to Youtube Nielsen data shows you too much land use screaming watch time for over two years.

Speaker Change: We will provide more details on the 'twenty 'twenty six capex outlook on a future earnings call.

Gordon: And generation that grew up with Youtube on their devices and now increasingly watching their favorite creators and content on their countermeasures.

Speaker Change: In terms of expenses first as I mentioned in our previous earnings call. The significant increase in our investments in Capex over the past few years, we will continue to put pressure on the P&L, primarily in the form of higher depreciation.

Gordon: That includes millions of sports fans too.

Gordon: Globally, they can see more than 40 million hours of sports content on Youtube annually.

Gordon: And in September we'll streamline our first class Friday game of the season life from Brasil plural.

Speaker Change: In the second quarter depreciation increased $1 3 billion year over year to $5 billion, reflecting a growth rate of 35% given the recent increase in Capex investments, we expect the growth rate in depreciation to accelerate further in Q3.

Gordon: From sports to shocks me know a range or 200 million daily views on Youtube shorts.

Gordon: AI is helping improve our recommendations and auto dumping.

Gordon: This translates to better times for creators and brands my dramatically increasing the potential audiences. They can reach.

Speaker Change: Second as we've previously said, we expect some head count growth in 2025 and key investment areas in the third quarter, we expect a sequential increase in total head count additions youth in part to the hiring of new graduates.

Speaker Change: So Navy began drawing on horn draft of new AI tools for creators on Youtube shops.

Speaker Change: Finally, Youtube continues to diversify its subscription options recently, expanding its premium light offerings to 15, new countries with more to come.

Speaker Change: Third Q3 will reflect the expense associated with the upcoming August launch of the new pixel family of products.

Speaker Change: In conclusion as he heard from Sundar and Philip we're pleased with the momentum in the business and excited about the pace of innovation.

Speaker Change: And lastly, Maimone continues to scale and expand to safely so more rhinos in more places last month mainland launched in Atlanta more than doubling its Austin cinema century, and expand in Los Angeles, and San Francisco Bay area countries by approximately 50%.

Speaker Change: Our full stack approach, which combines our infrastructure research and a products and platforms position us well to deliver new products and services across the company.

Speaker Change: We're seeing great momentum with our efforts as demonstrated by the increase in cumulative token processed.

Speaker Change: I'm also launched Din accounts, starting with Ryan S. H folding to 17 in Phoenix.

Speaker Change: Search revenues are seeing healthy growth with features like yea overviews mode and lens offering new ways for users to access information.

Speaker Change: Overall, great momentum here.

Speaker Change: One driver is now autonomously, driven or 100 million miles on public roads.

Speaker Change: <unk> has reached an annual revenue run rate of more than $50 billion and is delivering margin expansion, while continuing to invest to meet customer demand.

Speaker Change: And the team is testing across more than 10 cities this year, including New York Philadelphia.

Speaker Change: We hope to sell writers in all the time in the future.

Speaker Change: And Youtube has expanded its addressable market by building new services like shorts, which now averages over 200 billion daily views.

Speaker Change: As I said a standout quarter.

Speaker Change: Thank you as always to our employees and partners for an amazing Q2.

Speaker Change: We're excited to see the value our products and services are bringing to customers and partners around the globe.

Speaker Change: Over to you.

Dara: Thanks, So Dara Hello, everyone.

Speaker Change: Ill quickly cover performance for Google services for the quarter, then structure. The rest of my remarks around the great progress, we are delivering across search ads Youtube and partnerships Google.

Speaker Change: Now I'll turn the call over to the operator, and Sundar and Philip and I will take your questions.

Speaker Change: Thank you.

Speaker Change: <unk> a question you will need to press star one on your telephone to prevent any background noise. We ask that you. Please mute your line. Once your question that's been stated.

Speaker Change: Services revenues were <unk> 83 billion for the quarter up 12% year on year, driven by strong growth in search and Youtube, partially offset by year on year decline in network revenues.

Speaker Change: Your first question comes from Eric Sheridan with Goldman with Goldman Sachs. Your line is now open.

Speaker Change: To add some further color to our results the 12% increase in search and other revenues was led by growth across all verticals with the largest contributions from retail and financial services.

Speaker Change: Thank you so much for taking the question, maybe one for Sundar and one for Philip Solar when you think about the journey of Ron with respect to the evolution of products and platforms. How do you think about sort of the implications of change consumer behavior and how investors should think about that from a volume perspective versus the monetization perspective, because I think there's a lot.

Speaker Change: Youtube saw similar performance across verticals, it's 30% growth in advertising revenues was driven by direct response, followed by Brett.

Speaker Change: Starting with search and other revenues, which delivered or 54 billion in revenue for the quarter.

Speaker Change: Long standing dynamics out there about click and click monetization that might be very different when you look out over the next three to five years and Philip what do you think about the evolution of Youtube.

Speaker Change: Shifts like AI or what propels our industry forward.

Speaker Change: <unk> native multi modality is helping bring the offline audio and visual world back into the outlet world, creating a number of opportunities for search.

Speaker Change: You made a number of comments there about subscription revenue I'm just curious how you think about the mix of advertising versus subscription and what some of your key learnings might have been as the subscription side of the business continues to scale. Thank you.

Let me share a few examples.

Speaker Change: Take original course, Google lens searches so one of the fastest growing core types of search it grew 70% since this time last year.

Speaker Change: The majority of led searches are incremental and we're seeing healthy growth for shop inquiries using lids.

Speaker Change: Okay.

Speaker Change: And you can obviously take this to the next level by moving from image to video based capabilities like search life.

Eric Sheridan: Thanks, Eric I appreciate the question.

Speaker Change: And then Theres circle to search, which is known over 300 million Android devices.

Speaker Change: I don't think looking ahead.

Speaker Change: Based on everything we are seeing it's a.

Speaker Change: But adding capabilities to help people explore complex topics I'd ask follow up questions without switching apps. For example, gamers can though you circle to search while playing mobile games overview or outsource.

Speaker Change: People are excited about AI, they're adopting it well across our products.

Speaker Change: For me you know interesting multi modality.

Speaker Change: And just last week, we brought a new egencia capability directly into search for all U S use us with AI powered calling to local businesses.

Speaker Change: People have modified their behavior.

Speaker Change: Include images ultra lens and circling to search seem.

Speaker Change: Seamless as part of interacting with Google.

Speaker Change: Lee shopping where in Q2, we introduced a virtual try on experience for search lapsed users in the U S.

Our early indications that people are going to be adopting through these problems, but anybody well.

Speaker Change: Now people can try billions of clothing products on themselves virtually.

Speaker Change: I think I'm trying to understand your question in terms of.

Speaker Change: Early results and engagement have been extremely positive, particularly with Gen Z users and will be bringing this functionality to all U S users imminently.

Speaker Change: Monetization, maybe that's something for them.

Speaker Change: But overall, we expect.

Speaker Change: The button.

Speaker Change: Got it.

Speaker Change: As you know we have a standing of how to continue trading on monetization so that won't work well on the organic experiences.

Speaker Change: Add in our amazing AI translation capabilities, and just imagine the possibilities people can access more content that the language and businesses large and small international local can reach even more customers.

Speaker Change: But the organic experience.

Speaker Change: In terms of New York.

Speaker Change: Okay.

Speaker Change: On the organic experience for the near term.

Speaker Change: But just like we're doing with AI all views Admah pay I want all of our time.

Speaker Change: I'm excited about how all of these elements will come together and the opportunities ahead of us of search.

Speaker Change: We'll be able to bring a very very good commercial experience with that as well and we think people will adopt them.

Speaker Change: Moving to ads, where our strategy to reinvent the entire marketing process with AI is delivering value for our customers and our business.

Speaker Change: Same old me stop.

Speaker Change: Maybe you can add more color.

Speaker Change: Last quarter, we introduced a IMAX in search of new suite of AI powered features an existing search campaigns.

Speaker Change: Yeah. So on your question on Youtube subscriptions versus local I mean, we love our ACH business, we love our subscription business. Our Youtube subscriptions are an increasingly important to for Youtube will definitely continue our long term focus here, we had a strong growth across Youtube subscription products, which includes just to be clear our Youtube.

Speaker Change: Advertisers that activate T IMAX and search campaigns typically see 14% more conversions.

Speaker Change: V Youtube music and premium.

Speaker Change: And I think one common theme parks are subscription services in general is offering view us more choice here. We also have a very deep understanding of the amortization side here, where we bought the chargeable with ads, where it can be potentially monetized with subscriptions. So I think you will continue this.

Speaker Change: Campaigns, using smart bidding exploration CA, 19% increase in conversions on average.

Speaker Change: <unk> continues to drive revenue growth and deliver measurable impact for our customers as.

Speaker Change: As an example, deepak etsy resale clothing marketplace use of shorts only demand gen campaigns to drive new customers to the site.

Speaker Change: A double tiered strategy accuracy going forward.

Speaker Change: Shorts drove 80% aspire, Brad loves the Doubleclick rich versus benchmarks.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Doug Anmuth with Jpmorgan. Your line is now open.

Speaker Change: Accretive we launched asset studio using our latest models to help businesses large and small generate creative assets.

Doug Anmuth: Thanks, so much for taking the questions one for Sundar and one for Philip.

Speaker Change: Small businesses benefit from top quality assets of deployment scaling capabilities, but larger businesses can go faster from proof of concept to launch and resize and lower costs.

Doug Anmuth: Can you just talk about how youre thinking about your current access to compute even as you spend 10 billion more this year in Capex. You also said that you're still in a tight supply environment trying to marry those and then Philips Philip perhaps on search growth can you talk a little bit about paid click and pricing growth.

Speaker Change: 2 million advertisers now use google's AI powered asset generation tools to run that.

Speaker Change: 50% increase of this time last year.

Speaker Change: Turning to Youtube, where we saw continued strong revenue growth driven by direct response, followed by Brett.

Doug Anmuth: Just within the 12% search growth and how we should think about volume versus monetization trends going forward. Thanks.

Speaker Change: Youtube creators are connected to the global zeitgeist, a trusted by the audience is like no others.

Speaker Change: As part of Brent connect we launched creator partnership hub, which allows brands to more easily work with the right creators and tap into cultural moments.

Doug Anmuth: Okay.

Eric Sheridan: Doug Thanks on the on the Capex stuff, obviously, we are.

Speaker Change: You know seeing strong momentum across across our portfolio and especially in the cloud.

Speaker Change: We introduced view of three photo to video and generative effects to Schwartz, making content creation easier and offering unexplored avenues for creativity.

Speaker Change: You are right tight supply environment.

Speaker Change: We're seeing both the volume and the price of ads and Schwartz increase, particularly in developed markets. The.

Speaker Change: We are investing more.

Speaker Change: Span, but there's obviously a time delay between.

Speaker Change: The fee based nature of the product allows for more AD opportunities on average and this growth is further supported by AD formats native to Schwartz AI powered at creative Recessing tools improved AD targeting at the Reits enjoy engagement.

Speaker Change: Our initial investment will play out in future years and so that's.

Speaker Change: That's that's why most of them are.

Speaker Change: True at the same time.

Speaker Change: And that would be a planning ahead and we are investing in.

Speaker Change: Mcdonald's USA harnessed the influence of Youtube creators to ignite awareness. So the minecraft movie deal it leveraged Youtube shorts partnership adds to increase its reach generate against three three times higher view through rate that the industry benchmark.

Speaker Change: But overall, it's exciting to see the traction, particularly in cloud I think that the comprehensiveness of our AI portfolio.

Speaker Change: The breadth of our offerings.

Speaker Change: Finally on CTV, where the momentum continues.

Speaker Change: You know more broadening our modeling on the Gpus and Cpus for our customers all of that has been really driving demand and so we are investing to.

Speaker Change: According to the Gates report by Nielsen Youtube has been number one in streaming watch time in the U S for more than two years.

Speaker Change: A record high of 12, 8% of total TV viewing at June 2025.

Speaker Change: Too much of Jordan.

Speaker Change: And on your paid click question look to be very clear I think we said this before we manage the business to drive great outcomes for use us an attractive ROI for our advertisers, we actually don't manage through paid clicks and CPC targets.

Speaker Change: In the past 12 months Youtube ads viewed.

Speaker Change: CTV screens drove over 1 billion conversions.

Speaker Change: We saw strong growth in our retail thanks to CTV shopping ads, which allows us to show up directly via QR codes.

Speaker Change: Some of the product and policy changes, we made to drive better monetization at the expense of paid clicks.

Speaker Change: US leverage direct marketing opportunities.

Speaker Change: You will actually see in the 10-Q.

Speaker Change: We're up 4% year on year, but a number of factors affect these metrics from quarter to quarter, such as a few examples advertiser spending product changes policies policy changes user engagement.

Speaker Change: For instance, a new partnership with Paypal will improve the digital commerce experience for their merchants and customers.

Speaker Change: Paypal will expand its Google cloud adoption for AI, driven recommendations transaction processing that had security the.

Speaker Change: And.

Speaker Change: So it's really important when it comes to the paid clicks and CPC is to avoid drawing like overly broad conclusions solely based on these metrics.

Speaker Change: The partnership also broadens the availability and functionality of Paypal payment services and capabilities across a range of Google products.

Bob: Thank you Bob.

Speaker Change: Our next question comes from Brian Nowak with Morgan Stanley. Your line is now open.

Speaker Change: In closing I'd like to thank googlers everywhere for their contributions and commitment to our success and to our customers and partners for their continued trust.

Brian Nowak: For taking my questions I have two.

Brian Nowak: First one sundar, there's a lot of discussion about gentex search for commercial activities and agents that can be broadly deployed maybe could you just from a technology perspective, when you sit down with the engineering teams working on some of these new agenda capabilities that could come what are some of the predominate.

Speaker Change: <unk> over to you.

Thank you Philip My comments will focus on Europe, a year comparisons for the second quarter, unless I state otherwise I.

Speaker Change: I will start with the results at the alphabet level and will then cover our segment results I'll end with some commentary on our outlook for the second half of 2025.

Speaker Change: Technological hurdles that you think need to be cleared in order to launch scalable agents for commercial queries is the first one and the second one I think in the past you've updated us on stats on sources of internal efficiency, you've seen from Gen. AI enabled capabilities any updates there and then any sort of learning the tricks.

Speaker Change: We had another solid quarter in Q2 cancer.

Speaker Change: Consolidated revenue of $96 4 billion increased by 14% or 13% in constant currency.

Speaker Change: <unk> points, they also need to be overcome for some of these internal tools with <unk>. Thanks.

Speaker Change: Total cost of revenue was $39 billion up 10%.

Speaker Change: Okay.

Brian Nowak: Thanks, Brian.

Speaker Change: Let me start with the first one on agent PK properties look Carl.

Speaker Change: <unk> was $14 7 billion up 10% and other cost of revenue was $24 3 billion up 10% with the increase primarily driven by content acquisition costs largely for Youtube followed by depreciation.

Speaker Change: Definitely in many ways spend remote to fight.

Speaker Change: Our Cds of 2.5 models, particularly withdraw et cetera.

Speaker Change: That's the direction, we are investing the most.

Friendly exciting progress, including in our model and so we haven't released yet.

Speaker Change: And the main main gaps so you know what I'm trying to do is.

Speaker Change: You are obviously changing a sequence of events.

Speaker Change: So being able to do it.

Speaker Change: I believe the latency compounds are cost compounds.

Speaker Change: R&D investments increased by 16%, primarily driven by increases in compensation and depreciation expenses sells.

Speaker Change: And being able to do it reliably innovative when they use this all of this comes together.

Speaker Change: In each of this.

Speaker Change: Sales and marketing expenses increased 5%, primarily reflecting an increase in advertising and promotional expenses.

Speaker Change: We are making progress and it all needs to kind of hang together.

Speaker Change: Since we are making robust progress, we think being on the front end there.

Speaker Change: Operating income increased 14% this quarter to $31.3 billion and operating margin was 32, 4%.

Speaker Change: And.

Speaker Change: In all of this and yes, when you look back in a 12 month basis.

Speaker Change: We ended up making the model it's much more efficient for any given came from levied on the whole we're looking at.

I think it will really unlock the experience as we see the potential.

Speaker Change: But to do them.

Speaker Change: But they are a bit slow and costly and it takes time and sometimes have bruno right, but they're making progress on all of that.

Speaker Change: Net income increased 19% to $28 $2 billion and earnings per share increased 22% to $2.31.

Speaker Change: That's what will really unlock and I expect 2026 two.

Speaker Change: Being a year in which people kind of use agent experience as more broadly right and so it's an exciting opportunity ahead.

Speaker Change: We generated free cash flow of $5 $3 billion in the second quarter and $66 7 billion for the trailing 12 months.

Speaker Change: On the second part I think when you say it sounds like normalization I presume you're talking about how we are using.

Speaker Change: All of us internally.

Speaker Change: Okay.

Speaker Change: Kevin asked the question about agents, we are now beginning to rollout agent I think Corning.

Speaker Change: Journeys for our software engineers within the company and it's been exciting to see just over the last few months, particularly over the last few weeks people are definitely.

Speaker Change: We ended the quarter with 95 billion in cash and marketable securities.

Speaker Change: Turning to segment results, Google services revenues increased 12% to $82.5 billion, reflecting strength in Google search and Youtube advertising and subscription.

Speaker Change: Doing more agent take workflows and software engineering as well internally and that's that's a good example of the kind of.

Speaker Change: Google search and other revenues increased by 12% to $54 $2 billion.

Speaker Change: The same experience as a few months ago I had a lot of friction points, but you know me.

Speaker Change: Search and other revenues delivered growth across all verticals with the largest contributions coming from retail and financial services.

Speaker Change: We are all coming in and people are beginning to use internally on the coding side as well as certain other enhancement accompanying a small so exciting progress I expect it to be an active area everyone rollout journeys for our users as well so look forward to it.

Speaker Change: Youtube advertising revenues increased 13% to $9 8 billion driven by direct response advertising followed by Brent.

Speaker Change: Network advertising revenue of 7.4 billion were down 1% subscription.

Speaker Change: Yeah.

Speaker Change: Thanks Sundar has great.

Speaker Change: Our next question comes from Michael Nathanson with Moffett Nathanson. Your line is now open.

Michael Nathanson: Thanks, Sundar I have two for you.

Speaker Change: And I know you announced the partial to will be Parker glasses. So.

Speaker Change: So I wonder if you share your view how important a cycle new devices will be to further scale AI do you envision a world in which the more functional with central to our consumer experience, that's one and secondly, secondly.

Speaker Change: Google's service operating income increased 11% to $33.1 billion.

Speaker Change: Operating margin was flat year on year at 41% as healthy revenue growth and continued efficiency in our expense base or partially offset by the legal charge I mentioned earlier.

Speaker Change: How does Google search with AI move you should.

Speaker Change: Different differ sorry versus Gemini Standalone app. So I'm wondering if you're seeing any differences in usage or the types of consumers, who go to the app versus traditional search with AI.

Speaker Change: Turning to the Google Cloud segment, which delivered very strong results this quarter revenues.

Speaker Change: <unk> increased by 32% to $13 $6 billion in the second quarter, reflecting growth in G. C. P across core and AI products at the rate that was much higher than clouds over our revenue growth.

Michael Nathanson: Thanks, Michael on the first thing look I I think.

Speaker Change: Anytime.

Speaker Change: Changes.

Speaker Change: You can drive new experiences, including on our hardware experiences too. So I think a island, particularly enable long had the promise of classes and other form factors.

Speaker Change: And growth in Google Workspace, driven by an increase in average revenue per seat and the number of seats.

Speaker Change: Google Cloud operating income increased to $2 $8 billion and operating margin increased from 11, 3% to 27%.

Speaker Change: You know I think AI will spur a whole new wave of innovation there.

Speaker Change: We are super excited about our investment in glasses and you know.

Speaker Change: Hum.

Speaker Change: <unk> experienced a dramatic step up compared to the last.

Speaker Change: Lost attrition.

Speaker Change: So I think it would be an exciting new emerging category, but I still expect phones to be at the center of experience.

Speaker Change: You know for the next.

Speaker Change: Two to three years at least and so I still think that's going to be homes will continue to be at the center of the consumer experience, but we are excited about that margin categories as well.

Speaker Change: Google Cloud backlog increased 18% sequentially in Q2, and 38% year over year, reaching $106 billion at the end of the quarter.

Speaker Change: Second question on AI Mone versus Gemini Standalone not broadly.

Speaker Change: There are some use cases, where you can you can get a great experience in more places.

Speaker Change: This growth was driven by strong demand for our products and services from both new and existing customers.

Speaker Change: But there are use cases, which are very specific I think where the quantities are information oriented but people really wanted to rely on the information, but I have the phone power of AI I think AI won't really shines and that you can go there and you know it's backed up.

Sundar Pichai: As Sundar mentioned, we have signed multiple billion dollar plus deals in the first half of the year.

Sundar Pichai: Aster other bets in the second quarter revenue were $373 million in operating loss was $1 2 billion.

Sundar Pichai: Within other bets, we're allocating more resources to businesses like way more where we see opportunities to create additional value.

Speaker Change: The Gemini models are using search.

Speaker Change: Deeply is it too and so it's on the ground in that search experience and I think I think it users are responding very positively to it.

Sundar Pichai: With respect to Capex in the second quarter, our Capex was $22 $4 billion. The vast majority of our Capex was invested in technical infrastructure with approximately two thirds of investments in servers and one third in data centers and networking equipment.

Speaker Change: And there isn't a Gemini standalone app, you'll see everything Paul.

Speaker Change: People can have a long conversation with chat just trying to pass time right.

Speaker Change: In the Gemini App you know you've seen early cases, there people may get into it in a therapy like <unk>.

Sundar Pichai: In Q2, we returned capital to shareholders through repurchase of stock of $13 $6 billion in dividend payments of $2 $5 billion.

Speaker Change: Experience right. So these are all emerging experience at all what people do and I think this is why I'm glad we have both surfaces and we're going to innovate.

Sundar Pichai: Turning to our outlook I would like to provide some commentary on several factors that will impact our business performance in the second half of 2025 as.

Speaker Change: In both of these areas.

Speaker Change: That would be areas, which will be commonly found by most applications and all the time I think we can make the experience more seamless for our users.

Sundar Pichai: As well as an updated outlook for full year Capex.

Sundar Pichai: First in terms of revenues, we're pleased with the overall momentum we're seeing across the business at.

Unspecified: Thanks Sundar.

Speaker Change: Our next question comes from Mark Shmulik with Bernstein. Your line is now open.

Sundar Pichai: At current spot rates, we could see a tailwind to revenue in Q3, however volatility in exchange rates could affect the impact of FX on Q3 revenue.

Mark Shmulik: Yes, thanks for taking the question.

Mark Shmulik: It seems there is almost like a daily news report about the AI talent War and high profile folks moving around which is kind of like your perspective on how you think Google has been doing it both kind of attracting and retaining key talent and a lot of that civil Airlines, how do we think about AI related resourcing costs alongside that step.

Sundar Pichai: As far as segments and Google services advertising revenues in the second half of 2025 won't be affected by the following the continued lapping of the strength, we experienced in financial service verticals throughout 2024.

Sundar Pichai: And year over year comparisons will be negatively impacted by the strong spend on U S election in the second half of 'twenty 'twenty four particularly on Youtube.

Mark Shmulik: Up in capital investments required to go build free I. Thank you.

Mark Shmulik: Mark on the first question look I think.

Sundar Pichai: And cloud as I mentioned the demand for our products is high as evidenced by the continued revenue growth and the cloud backlog of $106 million.

Mark Shmulik: We've gone through these moments before we've obviously always deeply invested in.

Sundar Pichai: Well, we have been working hard to increase capacity and have improved the pace of server deployment, we expect to remain in a tight demand supply environment going into 2026.

Mark Shmulik: In parallel, including an AI talent for well over a decade now and.

Mark Shmulik: We have an extraordinary both breadth and depth of the talent.

Sundar Pichai: Moving to investments given the strong demand for our cloud products and services, we now expect to invest approximately $85 billion in Capex in 2025.

Mark Shmulik: In my experience.

Mark Shmulik: The top people look for a combination of.

Mark Shmulik: They want to really be at the frontier driving progress and then so the Michigan and.

Sundar Pichai: From a previous estimate of $75 billion.

Mark Shmulik: And how state of the art workers manner. So that's super important access to compute resources.

Sundar Pichai: Our updated outlook reflects additional investment in servers, the timing of delivery of servers and an acceleration in the pace of data center construction, primarily to meet cloud customer demand.

Mark Shmulik: Access to your peers right working with the best people in the industry and it's a combination of all of that and using it to drive impact and I think we are.

Sundar Pichai: Looking out to 2020 six we expect a further increase in capex due to the demand, we're seeing from customers as well as growth opportunities across the company.

Mark Shmulik: Any competent them on all those fronts and through this moment, we continue to look at the.

Mark Shmulik: Oh retention metric festival, that's the new talent coming in and the board are healthy.

Sundar Pichai: He will provide more details on the 20th twenty-six capex outlook on a future earnings call.

Mark Shmulik: Healthy.

Sundar Pichai: In terms of expenses first as I mentioned in our previous earnings call. The significant increase in our investments in Capex over the past few years, we will continue to put pressure on the P&L, primarily in the form of higher depreciation.

Mark Shmulik: I do know individual cases can make headlines and we looked at a couple of more steeply I think we are doing very well through this moment.

Mark Shmulik: And well continue investing in it.

Mark Shmulik: People and.

Mark Shmulik: And the talent and the compute needed to make sure. We are set up well for the opportunity and maybe I'll pass it on yeah on the question on how we integrate this into our overall cost structure and I've mentioned before having the the benefit of having the full stack includes research, which is our people and one of our most critical resource. So we make sure that we invest appropriately to have them.

Sundar Pichai: In the second quarter of depreciation increased $1 3 billion year over year to $5 billion, reflecting a growth rate of 35% given the recent increase in Capex investments, we expect the growth rate in depreciation to accelerate further in Q3.

Sundar Pichai: Second as we've previously said, we expect some head count growth in 2025 and key investment areas in the third quarter, we expect a sequential increase in total head count additions due in part to the hiring of new graduates.

Mark Shmulik: Best.

Mark Shmulik: Brightest minds in the industry sitting here at Google and advancing our innovation to customers. It is part of what you're seeing now in our operating expense line across the organization, but we're also working hard to offset not just growth in.

Sundar Pichai: Third Q3 will reflect the expense associated with the upcoming August launch of the new pixel family of products.

Speaker Change: Investment across the business, but also to ensure that we can allocate resources appropriately. So sundar mentioned earlier the use of AI tools within the company. So that's another area, where we can drive efficiency across the businesses to use these tools internally and.

Speaker Change: In conclusion as he heard from Sundar and Philip we're pleased with the momentum in the business and excited about the pace of innovation.

Speaker Change: Our full stack approach, which combines our infrastructure research and AI products and platforms position us well to deliver new products and services across the company.

Speaker Change: In terms of how we run the organization and then we're continuing on the same efforts that I've talked about before with regards to running the company with the high level of disciplined execution and driving efficiency across the business.

Speaker Change: We're seeing great momentum with our efforts as demonstrated by the increase in cumulative token processed.

Speaker Change: Search revenues are seeing healthy growth with features like yea overviews, yeah mode and lengths offer new ways for users to access information.

Speaker Change: Our next question comes from Ross Sandler with Barclays. Your line is now open.

Speaker Change: <unk> has reached an annual revenue run rate of more than $50 billion and is delivering margin expansion will continue to invest to meet customer demand.

Ross Sandler: Great if I can ask two.

Speaker Change: That would be great to have her phone gone.

Speaker Change: Search click through rates as a driver of monetization. So you guys are doing a great job over the past decade.

Speaker Change: And Youtube has expanded its addressable market by building new services like shorts, which now averages over 200 billion daily views.

Speaker Change: Driving better AD relevancy and higher click through rates and search.

Speaker Change: We're excited to see the value our products and services are bringing to customers and partners around the globe.

Speaker Change: Just curious as we look forward and we see lower AD impressions per server.

Speaker Change: Now I'll turn the call over to the operator, and Sundar and Philip and I will take your questions.

Speaker Change: And all of these things that are changing with AI overviews and.

Speaker Change: Different AI search.

Speaker Change: Thank you.

Speaker Change: Formats, how do you feel about your ability to drive <unk> going forward and then the second question is.

Speaker Change: <unk> a question you will need to press star one on your telephone to prevent any background noise. We ask that you. Please mute your line. Once your question it's been stated.

Speaker Change: It looks like Youre, not working with open AI for.

Speaker Change: Your first question comes from Eric Sheridan with Goldman with Goldman Sachs. Your line is now open.

Speaker Change: Some aspects of <unk>.

Speaker Change: Good infrastructure just curious.

Speaker Change: How that relationship might expand in the future.

Eric Sheridan: Thank you so much for taking the question, maybe one for Sundar and one for Philip Solar when you think about the journey of Iran. With respect to the evolution of products and platforms. How do you think about sort of the implications of change consumer behavior and how investors should think about that from the volume perspective versus the monetization perspective, because I think there is a lot.

Speaker Change: Thank you.

Speaker Change: Yeah.

Speaker Change: I can make.

Speaker Change: Take the first one I'm looking at specifically, referring to the air of reviews, if I understood. Your question correctly.

Speaker Change: Sundar mentioned it are they continue to drive higher satisfaction that continue to drive higher search users are they.

Speaker Change: They are scaling up very nicely there actually working for our entire user base no skilled over 2 billion users throughout the countries.

Speaker Change: So very happy with this development, but when it comes specifically to the monetization of it.

Speaker Change: You made a number of common stirabout subscription revenue I'm just curious how you think about the mix of advertising versus subscription and what some of your key learnings might have been as the subscription side of the business continues to scale. Thank you.

Speaker Change: Talked about it before we see monetization at approximately the same rate, which gives us actually a really strong base on which we can innovate.

Speaker Change: Yeah.

Speaker Change: That drive actually avoid a bit if you have an extra duration out for that.

Speaker Change: Okay.

Speaker Change: That's how we look at it at this moment.

Speaker Change: Yeah.

Speaker Change: Thanks, Eric I appreciate the question.

Speaker Change: Yeah.

Speaker Change: On the second part.

Speaker Change: I don't think looking ahead.

Speaker Change: With respect to me I look we're very excited to be partnering with them on Google cloud.

Speaker Change: Based on everything we are seeing it's a.

Speaker Change: People are excited about AI, they're adopting it well across our products.

Speaker Change: <unk> cloud.

Speaker Change: As our open platform and we have a store.

Speaker Change: <unk> history of supporting.

Speaker Change: For me you know interesting multi modality.

Speaker Change: Great companies startups, AI labs et cetera, So super excited about our partnership there on the cloud side.

Speaker Change: Now people have modified their behavior.

Speaker Change: Include images through lens since I've come to search.

Speaker Change: And and Oh, we look forward to investing more in that relationship and growing there.

Speaker Change: I'm listening as part of interacting with Docomo.

Speaker Change: Our early indications that people are going to be adopting to these points, but anybody well.

Speaker Change: I think I'm trying to understand your question in terms of Oh.

Speaker Change: Our next question comes from Mark Mahaney with Evercore. Your line is now open.

Speaker Change: Click and click monetization, maybe that's something for them.

Mark Mahaney: Okay. Two questions. Please first could you describe maybe fill up what you see in terms of the AD environment, maybe for the back half of the year, maybe versus last year it doesn't seem as.

Speaker Change: Sean.

Speaker Change: But overall, we expect as we build out our organic experiences.

Speaker Change: We have a good understanding of how to continue trading on monetization so that will work well on the organic experiences.

Mark Mahaney: Certain or as uncertain as it was last year and the results seem pretty strong are there any any any unusual concerns you would have for the back half of the year and then a similar I would ask again about the two surfaces approach to search and.

Speaker Change: But we will leave with organic XP and so in terms of newer San Francis like Gemini App, etc.

Speaker Change: Focus on the organic experience for the near term.

Mark Mahaney: So you got some you must have some internal metrics that would tell you that that's that that's the optimal way for you to approach the market but.

Speaker Change: Just like we're doing with AI all views Adama pay I won't over time, you know well.

Speaker Change: We'll be able to bring a very very good commercial experience with that as well and we think people will adapt to them.

Mark Mahaney: I'm sure. There's a counter argument that just happened that unified search and being able to discern the intent of the search whether its pure information of our commercial just from Macquarie.

Speaker Change: Well, let me start.

Speaker Change: Maybe you can add.

Speaker Change: Okay.

Speaker Change: Yeah. So on your question on Youtube subscriptions versus local I mean, we love our ads business, we love our subscription business Youtube subscriptions are an increasingly important to for Youtube will definitely continue our long term focus here.

Mark Mahaney: That could give you a material advantage over other offerings in the market you just talk a little bit about what metrics you've seen that.

Mark Mahaney: It does make the two surface solutions seem to be optimal thank you.

Speaker Change: Had a strong growth across Youtube subscription products, which includes just to be clear Youtube TV Youtube music and premium.

Mark Mahaney: So let me start look our reset RF business performed strongly in Q2 give you maybe some vertical color of it are in Q2 search and other performance was led by growth across all verticals, we mentioned the largest contribution from retail and financial services.

Speaker Change: And I think one common theme parks are subscription services in general is offering view us more choice here. We also have a very deep understanding of the amortization side here, where we bought it tells you about where that where could we potentially monetize mobile subscriptions. So I think we will continue this as a double tiered strategy activity going forward.

Mark Mahaney: Which was probably do extra to strengthen insurance, we saw health care as a sizable contributor to growth as well.

Mark Mahaney: Look we're only a few weeks into Q3, so I think it's really too early to comment on anything happened in the second half of the year.

Speaker Change: Thank you.

Mark Mahaney: Yes.

Speaker Change: Our next question comes from Doug Anmuth with Jpmorgan. Your line is now open.

Mark Shmulik: And Mark on the second.

Mark Mahaney: The second part of the question Okay.

Speaker Change: Thanks, so much for taking the questions one for Sundar and one for Philip.

Mark Mahaney: Okay.

Mark Mahaney: Thank you.

Mark Mahaney: You know the.

Mark Mahaney: Between these two services you're pretty much it.

Speaker Change: Sundar can you just talk about how youre thinking about your current access to compute even as you spend 10 billion more this year in Capex. You also said that you're still in a tight supply environment Youre trying to marry those and then Phillips Philip perhaps on search growth can you talk a little bit about paid click and pricing.

Mark Mahaney: And are you covering the breadth and depth.

Mark Mahaney: Humanity can possibly do fighting this fight for two San Francis to.

Mark Mahaney: Tackling this moment obviously are.

Mark Mahaney: You are right. So it's just more information focused.

Mark Mahaney: And we think of that Jim and I have a small your assistant that more or so proactive and powerful assistant for every aspect of your daily life.

Speaker Change: Just within the 12% search growth and how we should think about volume versus monetization trends going forward. Thanks.

Mark Mahaney: And so you can imagine wanting to call deeply or.

Speaker Change: Okay.

Speaker Change: Doug Thanks on the on the Capex stuff, obviously, we are.

Mark Mahaney: Create a long video et cetera, like you know those things can be done by the Gemini after named banner.

Speaker Change: Seeing strong momentum across across our portfolio and especially in cloud.

Mark Mahaney: It's all one time like we've always done we've gone through this evolution before like as you point out.

Speaker Change: <unk>.

Mark Mahaney: We can we can understand use an independent banner and abstract some off the conflict committee for our users at one point and people used to go to a.

Speaker Change: You are right [laughter] tight supply environment.

Speaker Change: We are.

Speaker Change: Nothing more to it.

Speaker Change: Span, but there's obviously a time delay between.

Mark Mahaney: So probably before text no friendly from a manager is differently from videos et cetera, and we kind of made it all seamless with universal search and we have the experience of being able to bring together experiences in a way that makes sense for users and do the heavy lifting for them, but what I think you know when you are in this early stage of.

Speaker Change: This initial investment it will play out in future years and so that's.

Speaker Change: That's that's why most of them are.

Speaker Change: True at the same time.

Speaker Change: And that would be a planning ahead and we are investing in.

Speaker Change: But overall, it's exciting to see that.

Speaker Change: <unk>, particularly in cloud I think that the comprehensiveness of our AI portfolio.

Mark Mahaney: And new emerging pattern I am, saying, we want to make sure.

Mark Mahaney: We can meet them bad bad bad.

Speaker Change: The breadth of our offerings.

Mark Mahaney: What they are expecting today and all the time I think it will give us.

Speaker Change: You know mark broadening our modeling sort of Gpus and Cpus for our customers all of that has been really driving demand and so we are investing to to match up to it.

Mark Mahaney: And the opportunity to serve them better. So I think that's all we had thank you.

Mark Mahaney: Okay. Thank you.

Speaker Change: And on your paid click question looked to be very clear I think we said this before we manage the business to drive great outcomes for our use us an attractive ROI for our advertisers, we actually don't manage through paychex.

Speaker Change: Our next question comes from Ken Garosci with Wells Fargo. Your line is now open.

Speaker Change: Thank you very much two if I may please the first on cloud.

Speaker Change: I'm, just hoping maybe you could clarify your back half outlook given last quarter, you talked about some supply constraints that would ease towards the end of 2025, but yet you put up a really nice acceleration in <unk> now you're talking about.

Speaker Change: CPC targets.

Speaker Change: Some of the product and policy changes, we make actually drive better monetization at the expense of paid clicks.

Speaker Change: You will actually see in the 10-Q.

Speaker Change: <unk> were up 4% year on year, but.

Speaker Change: A number of factors affect these metrics from quarter to quarter, such as a few examples advertiser spending product changes policies policy changes user engagement.

Speaker Change: Some supply constraints easing into 26, if you could just clarify a little bit on the back half outlook for cloud given the strong results in <unk> and then the second is a bigger picture question, which is.

Speaker Change: And so on so it's really important when it comes to paid clicks and CPC is to avoid drawing like overly broad conclusions solely based on these metrics.

Speaker Change: An agenda experience does it does it democratize the web like searched it two decades ago, enabling discovery in the long tail or does it lead to more concentration with a smaller group of vertical winters would love. It if you could opine on that thank you.

Speaker Change: Yeah.

Bob: Thank you Bob.

Speaker Change: Our next question comes from Brian Nowak with Morgan Stanley. Your line is now open thanks.

Brian Nowak: Thanks for taking my questions I have two.

Speaker Change: Right.

Speaker Change: First of all one sundar, there's a lot of discussion about gentex search for commercial activities and agents that can be broadly deployed maybe could you just from a technology perspective, when you sit down with the engineering teams working on some of these new agenda capabilities that could come what are some of the predominate.

Speaker Change: Okay on your first question on the cloud second half outlook and the comments I previously made on with regards to where we're going to see the capacity increase. So obviously, we're working hard to bring more capacity online, which means datacenters and servers are coming online and we see more of an increase towards the <unk>.

Speaker Change: Back end of the year, but we're crazy increasing capacity with every quarter that goes by as you can see with the.

Speaker Change: Growth rates, we've had both this quarter and in the previous quarter and Sundar mentioned earlier. This is not the type of investment that's a light switch it takes time.

Speaker Change: <unk> point that also needs to be overcome for some of these internal tools with <unk>. Thanks.

Speaker Change: Okay.

Brian Nowak: Thanks, Brian on let me start with the first one on agent PK properties.

Speaker Change: Al.

Speaker Change: We are definitely in many ways and we both to fight.

Speaker Change: Our Cds of 2.5 models, particularly withdraw et cetera.

Speaker Change: That's the direction, we are investing the most.

Speaker Change: Definitely exciting progress, including intermodal and so we haven't released yet.

Speaker Change: And the main main gaps do you know what I'm trying to do is.

Speaker Change: You are obviously changing a sequence of events and.

Speaker Change: And so being able to do it.

Speaker Change: Reliably the latency compounds are cost compounds.

Speaker Change: And being able to do it reliably innovative when they use us all of that comes together.

Speaker Change: And each of this Oh, we are making progress and it all needs to kind of hang together.

Speaker Change: The good news is we are making robust progress, we think being in the frontier Behr and.

Speaker Change: In all of this and yes, when you look back in a 12 month basis.

Speaker Change: We ended up making the model it's much more efficient for any given capability on the forward looking at Patrick.

Speaker Change: I think we'll really unlock the experience as we see the potential.

Speaker Change: But to do them.

Speaker Change: But they are a bit slow and costly and it takes time and sometimes have Bruno alright, but they're making progress on all of that.

Speaker Change: That's what will really unlock and I expect 2026 two.

Speaker Change: Being a year in which people kind of use and unique experiences more broadly right and so it's an exciting opportunity ahead.

Speaker Change: On the second part I think when you say it sounds like normalization I presume you're talking about how we are using.

Speaker Change: All of us internally.

Speaker Change: Okay and.

Speaker Change: Given you asked a question about agents, we are now beginning to rollout agent I think Corning.

Speaker Change: Journeys for our software engineers within the company.

Speaker Change: It's been exciting to see just over the last few months.

Speaker Change: Only one of the last few weeks people are definitely.

Speaker Change: Doing more agent take workflows and software engineering as well internally and that's that's a good example of the kind of.

Tangible capex, obviously, a bigger increase which appears to be because of of cloud demand, but just.

Speaker Change: Are the same experiences a few months ago I had a lot of friction points, but we.

Speaker Change: We are all coming in and people are beginning to use internally on the coding side as well as in certain other areas in the company and a small so exciting progress I expect it to be an active area.

Just your comments on cloud, our ROI and I'm, sorry, Capex ROI, what gives you confidence that youre going to get good returns on that spend thank you.

Speaker Change: Great Okay.

Speaker Change: That'd be one rollout journeys for our users to sponsor them. So look forward to it.

Speaker Change: On the first thing on auto subscriptions.

Speaker Change: Yeah.

Speaker Change: We've definitely seen a.

Speaker Change: That's great.

Speaker Change: Google wanted us being an attractive value proposition pardon my storage.

Speaker Change: Our next question comes from Michael Nathanson with Moffett Nathanson. Your line is now open.

Speaker Change: Now, our AI plans, including won't grow an entre and particularly with the 2.5 see these components.

Michael Nathanson: Thanks, Sundar I have two for you.

Michael Nathanson: I know you announced the partial to will be Parker developed glasses. So I wonder if you share your view of how important are cycled new devices will be to further scale AI do you envision a world in which the more functional with central to our consumer experience, that's one and secondly, secondly.

Speaker Change: I'm definitely seeing accelerating traction so it was a very healthy corner.

Speaker Change: And and and so we are definitely excited about the opportunities ahead.

Speaker Change: And you will find to this moment I think we'll be able to drive growth in that area based on our AI offerings and so it's definitely an area we are voting.

Michael Nathanson: How does Google search with AI mood usage different.

Michael Nathanson: <unk> versus Gemini Standalone App, so I'm wondering if you're seeing any differences in usage or the types of consumers, who go to the app versus Hugo Attritional search with AI.

Speaker Change: I'm excited by it and we're actually seeing a traction, particularly in the last corner I ever since we introduced 2.5 Pearl somebody I'm excited about our about the trajectory there on the Capex on the cloud side look I I think we are definitely investing because.

Michael Nathanson: Thanks, Michael on the first thing look I I think.

Michael Nathanson: Anytime.

Michael Nathanson: Changes.

Michael Nathanson: You can drive new experiences, including on our hardware experiences too. So I think a island, particularly enable long had the promise of classes sent out a form factors.

Speaker Change: We are delivering a lot of value to our cloud offering and I think it's important to understand.

Speaker Change: You know as the bone or in more of an installed base with Google cloud we.

Michael Nathanson: You know I think AI will spur a whole new wave of innovation there.

Speaker Change: We have very high customer satisfaction, our churn rates are very low and we are much more efficient.

Michael Nathanson: We are super excited about our investment in glasses, and you know in Thailand.

Speaker Change: And in the investments needed to grow those lines of businesses. So you were seeing all of that play out in our margin trajectory, particularly if you look at it and when the sequencing to you all in the past a.

Michael Nathanson: Experiences have taken them.

Michael Nathanson: My next step up compared to the last comparable.

Michael Nathanson: Loss inflation, so I think it would be an exciting new emerging category, but I still expect phones to be at the center of experience for.

Speaker Change: Few years, and so and you know so all that gives us confidence that we are investing in this oh, we will.

Michael Nathanson: For the next.

Michael Nathanson: Two to three years at least and so.

Speaker Change: We will be able to.

Michael Nathanson: I still think that's going to be phones will continue to be at the center of the consumer experience, but we are excited about the emerging categories as well.

Speaker Change: Have a healthy ROI on our investments.

Speaker Change: I mean, this AI moment.

Speaker Change: There's definitely a value we are delivering to the customers.

Michael Nathanson: On your second question on AI Mone versus Gemini Standalone not broadly.

Speaker Change: <unk> is also growing significantly on a forward looking basis, and so I think all of that will help us a new world here.

Michael Nathanson: There are some use cases, where you can you can get a great experience in more places.

Operator: Happy Birthday, YouTube!

Michael Nathanson: But there are use cases, which are very specific I think where the quantities are information oriented but people really wanted to rely on the information, but I have the full power of AI I think AI won't really shines and that you can go there and you know it.

Speaker Change: Thank you and that concludes our question and answer session for today I'd like to turn the conference back over to Jim Friedland for any further remarks.

Speaker Change: Thanks, everyone for joining us today, we look forward to speaking with you again on our third quarter 2025 call. Thank you and have a good evening.

Operator: I don't know if I'm on the right path, but I'm trying to find it. I'm questioning, searching, and then something shifts, and I'm not trying anymore, I'm just doing. And all the pieces start falling into place. It all feels pretty clear in my head. I see these flashes of possibilities, almost like I'm traveling through dimensions. I'm looking down at myself and my characters in these different worlds, and it's almost coming to life on their own, even though I know I'm in control of that narrative. It feels like it's almost building upon itself at some point.

Michael Nathanson: Backed up.

Michael Nathanson: The Gemini modems are using such a deeply is it too and so it's all grounded in that search experience and I think I think it users are responding very positively to it.

Speaker Change: Thank you everyone. This concludes today's conference call. Thank you for participating you may now disconnect.

Speaker Change: I imagine a time when I started out on the App, you'll see everything Paul.

Speaker Change: [music].

Speaker Change: People can have a long conversation with chat just kind of past time right and.

Speaker Change: And then Jeff and I have you know you have seen any cases, there people may get into it in a therapy like <unk>.

Speaker Change: Hum.

Speaker Change: [noise].

Speaker Change: Experience right. So these are all emerging experience at all what people do and I think this is why I'm glad we have bought surfaces and we can innovate.

Speaker Change: In both of these areas.

Speaker Change: That'd be areas, which will be commonly found by both applications and all the time I think we can make the experience more seamless for our users.

Operator: You know, you could have an infinite amount of endings to your story. The work isn't built brick by brick by brick. It blooms like a continuous garden. It grows naturally, fully vibrant and complete. I'm not forcing it.

Speaker Change: King.

Speaker Change: And the details you'll get payment methods and PCR, though it does seem to us.

Eric Sheridan: Thanks Sundar.

Speaker Change: Our next question comes from Mark Shmulik with Bernstein. Your line is now open.

Speaker Change: Jamaica.

Speaker Change: Keith.

Mark Shmulik: Yes, thanks for taking the question.

Speaker Change: Well, yeah Cherry season is officially on grains okay.

Mark Shmulik: It seems there's almost like a daily news report about the AI talent War and high profile folks moving around which is kind of like your perspective on how you think Google has been doing it both kind of attracting and retaining key talent and a lot of that civil Airlines, how do we think about AI related resourcing costs alongside kind of the step.

Speaker Change: Yes.

Speaker Change: Now I know you've seen these deny our historical blogger video is popping up in your favorite moment and you're wondering GSL, how do I do this well let me show you. The video Gen. All involves collected generate audio button and Hawaii.

Operator: I'm just finding it, and that's when I know I'm in the right place.

Speaker Change: The magic in the prompt.

Speaker Change: So that Youll see now set the style for the video.

Mark Shmulik: Up in capital investments required to go build for AI. Thank you.

Speaker Change: And then finally add your dialogue and it's as simple as that get all the AI tools and all of the asset with one subscription.

Mark Shmulik: Mark on the first question look.

Mark Shmulik: I think.

Mark Shmulik: We've gone through these moments before we've obviously always deeply invested in in parallel, including an AI talent for well over a decade now and.

Sarah: So, to recap, Sarah, you'll be optimizing our Google Ad campaign for the Summer Collection? Yep, on it. And making the Summer Collection's new performance asset? No problem.

Speaker Change: Yes.

Speaker Change: Okay.

Operator: Also, can you double check the product injuries?

Mark Shmulik: I think we have an extraordinary both breadth and depth of the talent.

Speaker Change: [music].

Operator: Oh, and can you look and see which marketing channels are driving the highest converting users, who also engages our content for longer than five minutes, in the past four weeks? I'll ping you.

Mark Shmulik: In my experience.

Mark Shmulik: The top people look for a combination of they want to really be at the frontier in driving progress and then so the mission and and and how state of the art work. This matter. So that's super important access to compute resources.

Speaker Change: Yeah.

Speaker Change: Yes.

Speaker Change: [noise].

Mark Shmulik: Access to your peers, right and working with the best people in the industry and it's a combination of all of that and using it to drive impact and I think we are pretty confident them on all those fronts and through this moment, we continue to look at the.

Mark Shmulik: Our retention metric festival, that's the new talent coming in and on board.

Okay.

Speaker Change: [music].

Mark Shmulik: Healthy.

Mark Shmulik: I do know individual cases can make headlines.

Speaker Change: Yes.

Mark Shmulik: Okay. Okay, no more steeply I think we are doing very well through this moment.

Speaker Change: [music].

Mark Shmulik: And well continue investing in our people.

Mark Shmulik: And the balance in the compute needed to make sure. We are set up well for the opportunity and maybe I'll pass it on.

Mark Shmulik: Yeah. Another question on how we integrate this into our overall cost structure and I've mentioned before having the the benefit of having the full stack includes research, which is our people and one of our most critical resource. So we make sure that we invest appropriately to have the best.

Speaker Change: That I've talked about before are with regards to running the company with a high level of discipline and execution and driving efficiency across the business.

Operator: One of these apps has malware. Which one is it? You tell me.

Operator: Well, the unicorn said it'd give me extra tokens. Free magical gold! Typical.

Speaker Change: Our next question comes from Ross Sandler with Barclays. Your line is now open.

Operator: The delivery app promised me free food. Do you like pizza? Mm-hmm.

Operator: It can't be her. I'm innocent.

Speaker Change: Great if I can add to that would be great. So the first one is on.

Kenneth: Kenneth? You may not be able to tell which app is a trap, but Google Play can. Apps on Google Play go through over 10,000 safety checks.

Speaker Change: Search click through rates as a driver of monetization. So you guys are doing a great job over the past decade.

Operator: No! Can you see unicorn? So is the cute one.

Speaker Change: Driving better AD relevancy and higher click through rates and search.

Operator: Next time, stay safer with Google Play.

Speaker Change: I'm just curious as we look forward and we see lower AD impressions per server.

Operator: How are you finding the festival? I proper love it, I'm in my element. Don't know why everyone always complains about the weather.

Speaker Change: All of these things that are changing with AI overviews.

Operator: What's your festival camping essentials? Definitely the inflatable mattress.

Speaker Change: Different.

Speaker Change: Formats, how do you feel about your ability to drive <unk> going forward and then the second question is it looks like Youre not working with open AI for some.

Operator: Why are you here? for their free love! Ha ha ha!

Operator: Favourite band? I'm not really here for the music, more getting my chakras realigned in the Restoration Meadow and letting everyone know about it on social media. Is this your first time? Gosh, no!

Speaker Change: Some aspects of cloud infrastructure.

Speaker Change: There is all about.

Speaker Change: That relationship might expand in the future. Thank you.

Operator: It's all so commercial now. I was here in 67 when Falcon's Breath played for 14 hours straight. Cosmic event.

Speaker Change: Yeah.

Speaker Change: I can.

Operator: Is it hard being here with kids? Ha! How naive.

Speaker Change: Take the first one.

Operator: No, we always bring them. It's important to expose them to the poetry tent from a young age.

Speaker Change: Look it was specifically referring to the era of reviews, if I understood your question correctly.

Operator: How did you get backstage? It's a VIP pass, actually, mate. I'm basically the DJ's BFF for life. We go everywhere together. Are you excited for the headliner? Yeah, but I'm going to stand towards the back. Last time I was in the pit, I took someone's eye out.

Speaker Change: I mentioned it are they continue to drive higher satisfaction. The continued drive higher search users.

Speaker Change: Getting up very nicely there actually working for our entire user base, though skilled over 2 billion users.

Speaker Change: Countries.

Speaker Change: So very happy with this development, but when it comes specifically to the monetization of it.

Operator: It's 4am.

Operator: Time to make some noise. Aaaaaah!

Speaker Change: Talked about it before we see monetization at approximately the same rate, which gives us actually a really strong base on which we can innovate.

Operator: Can you see the stage from up there? No!

Speaker Change: That drive a few more innovative next generation ad format.

Speaker Change: That's how we look at it at this moment.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: On the second part.

Speaker Change: With respect to our company I look we are very excited to be partnering with them on Google cloud.

Speaker Change: Google Cloud.

Speaker Change: As our open platform and we have a strong history of supporting.

Speaker Change: Great companies startups AI lab sensitized, so super excited about our partnership there on the cloud side.

Speaker Change: And and Oh, we look forward to investing more in that relationship and growing there.

Speaker Change: Our next question comes from Mark Mahaney with Evercore. Your line is now open.

Mark Mahaney: Okay. Two questions. Please first could you just describe maybe fill up what you see in terms of the AD environment, maybe for the back half of the year, maybe versus last year does it seem as.

Mark Mahaney: Certain or as uncertain as it was last year. The results seem pretty strong are there any any any unusual concerns you would have for the back half of the year and then Sundar I'll ask again about the two surfaces approach to search and.

Mark Mahaney: So you got some you must have some internal metrics that would tell you that that's the that's the optimal way for you to approach the market but.

Operator: Okay, Pixel, so remember last time we talked about how people think I'm doing the same thing as you, but it's all just like, a crazy coincidence? Totally crazy.

Mark Mahaney: I'm sure. There's a counter argument that just hasn't got unified search and being able to discern the intent of the search whether its pure information on commercial just from Macquarie.

Operator: Well, what's even crazier is I just announced all these new features and people think I'm doing it again. No way! Way. So like, I announced live translation for text messages, right? And it turned out I had that four years ago. Yeah, crazy coincidence. And I announced hold assist. And it turned out I had that five years ago. Yeah, so wild. And, hear this, I announced call screening. And it turned out I had that seven years ago. Yeah. I mean, what are the chances? So crazy. Unbelievable. Totally unbelievable.

Speaker Change: That could give you a material advantage over other offerings in the market just talk a little bit about what metrics you've seen that that make it make the two surface solutions seem to be optimal. Thank you.

Mark Mahaney: Okay.

Speaker Change: So let me start.

Speaker Change: Look our reset RF business performed strongly in Q2.

Speaker Change: To give you maybe some vertical color of it are in Q2 search and other performance was led by growth across all verticals.

Speaker Change: We mentioned the largest contributions from retail and financial services.

Speaker Change: Which was probably do extra to strengthen insurance, we saw health care as a sizable contributor to growth as well.

Operator: So, what are you working on for Pixel 10, just like, out of curiosity? Um...

Speaker Change: Look we're only a few weeks into Q3, so I think it's really too early to comment on anything happened in the second half of the year.

Operator: Oh, hi!

Speaker Change: And mark on the.

Speaker Change: The second part of the question Okay.

Speaker Change: Okay.

Speaker Change: Thank you.

Speaker Change: Yeah.

Speaker Change: Between these two services you've pretty much it.

Speaker Change: You know you're covering the breadth and depth.

Speaker Change: You know humanity can possibly do fighting this fight for two San Francis to.

Speaker Change: Tackling this moment obviously.

Speaker Change: You are right. So just more information August.

Speaker Change: And we think of that Jim and I have a small your assistant that more arsenal proactive and powerful assistant for every aspect of your daily life.

Speaker Change: And so you can imagine wanting to call deeply are.

Operator: Can you make a bunch of like confetti circles explode out of my mouth? I've updated the sketch.

Speaker Change: Create a long video et cetera, like those things can be done by the Gemini app to named banner.

All what I'm like we've always done and we have gone through this evolution before like as you point out.

Speaker Change: We can we can understand use an independent banner and abstract some off the complex city for our users.

Operator: Okay, what should we build next? Okay, here's another 30 ideas for you. Oh, here it is.

Speaker Change: One point people used to go to a.

Speaker Change: Parties have played before taxed differently from a manager is differently from videos et cetera, and we kind of made it all seamless and excuse me my son search. So we have the experience of being able to bring together and experiences in a way that makes sense for users and do the heavy lifting for them, but I think you know when youre in this early stage of.

Operator: Let's find this game. There it is. Okay.

Operator: We sure we're easy to find the games you love? Come on. Sports Zaggy. Okay. Team 62.

Speaker Change: New and emerging pattern I am saying, we want to make sure.

Operator: What is happening? Okay, let's see.

Operator: Why? YouTube TV has your favorite sports and live TV in one app, so you can easily watch the games you want.

Speaker Change: We can meet them bad bad bad right.

Speaker Change: What they are expecting today and all the time I think it will give us.

Operator: Jason, you still here? Sorry, Rick. Let's go to the games. Yeah! Now here we go.

Speaker Change: And our opportunity to serve them better. So I think that's how we are taking.

Speaker Change: Okay. Thank you.

Ken Garosci: Our next question comes from Ken Garosci with Wells Fargo. Your line is now open.

Operator: I can't help it if I'm poppin' seeds and watchin' them grow. It's outrageous how this flavor got and should grow.

Ken Garosci: Thank you very much two if I may please the first on cloud.

Operator: This is fabulous. Show me how you gon' work, work, work it out. I hit it bad with a brand new style. Bring it up until the pole get wild. We turnin' up all the way on the dial like work, work, work it out.

Ken Garosci: Just hoping maybe you could clarify your back half outlook given last quarter, you talked about some supply constraints that would ease towards the end of 2025, but yet you put up a really nice acceleration in <unk> now you're talking about.

Operator: Come and show me what you're all about.

Operator: What else should I do to make it stronger? To make it stronger, consider adding more triangles to the design.

Ken Garosci: Some supply.

Ken Garosci: Strange easing into 26, if you could just clarify a little bit on the back half outlook for cloud given the strong results in <unk> and then the second is a bigger picture question, which is.

Ken Garosci: An agenda experience does it does it democratize the web like search did two decades ago.

Ken Garosci: Enabling discovery in the long tail or does it lead to more concentration with a smaller group of vertical winners would love. It if you could opine on that thank you.

Ken Garosci: Right.

Operator: Work, work, work it out. I hit it bad with a brand new style. Bring it up until the pole get wild. We turnin' up all the way on the dial like work, work, work it out. Come and show me what you're all about.

Ken Garosci: Okay on your first question on the cloud second half outlook and the comments I previously made on with regards to where we're going to see the capacity increase.

Ken Garosci: We're working hard to bring more capacity online, which means datacenters and servers are coming online and we see more of an increase towards the back end of the year, but we're crazy increasing capacity with every quarter that goes by as you can see with the.

Operator: F-A-B-U-L-O-U-S every day like. If you want it, come get it, no disrespect.

Ted: This is Ted. Ted was born in 1998, the year of the first Google search. And as a teenager, whatever Ted was looking for, Google helped him find it. And so it went, year after year. There was always some new question on his mind. Ted is 26 now. His life isn't so simple.

Ken Garosci: Growth rates, we've had both this quarter and in the previous quarter and Sundar mentioned earlier. This is not the type of investment that's a light switch. It takes time to make this investment so whats you're seeing now is the investments we made.

Ken Garosci: Some time ago that is now translating to additional capacity coming online, but more of that towards the back end of the year. It will say it's important as you think about cloud gross not just think about this in their linear fashion, because the Korean quarter growth rates could depend on the timing of capacity delivery and when that comes.

Operator: Fortunately, Google still is.

Operator: Why is this not working? Even when his questions are a lot of questions in one.

Ken Garosci: Online so that could move.

Operator: What's something cool happening tonight in the city and still gets me home at a reasonable time? Which is how Ted found something he didn't even know he was looking for. Turns out, life's full of questions. Luckily, you can just ask Google.

Ken Garosci: A little bit from from quarter to quarter.

Ken Garosci: Look on it on the on agent experience Okay.

Ken Garosci: There was only a question.

Ken Garosci: On the technology aspects of it and how we are making progress obviously Dennis.

Ken Garosci: The value proposition for all of the plants in wall and I think that's going to be an equally important thing.

Operator: Oh, boy. Who, who, who, who, who, who, who, who, who, who? Who, who, who, who, who, who, who, who?

Ken Garosci: Create and unlock here.

Ken Garosci: And I do think you know our time use as well.

Operator: I see infinite possibilities with flow.

Ken Garosci: It's clear to me as we make progress on the agent experience, it's going to be a much better experience for users right and so.

Operator: What manner of magic is that? AI mode is the biggest revolution since the search engine was invented. You tell Gemini exactly what you want built, and it builds it for you.

Ken Garosci: Youll find a savvy interplay ash leaning into these experiences and that will help them grow and made this moment and I think I saw I do think it's an opportunity.

Operator: You know. Coding with Gemini 2.5 Pro, it is awesome.

Operator: Project Mariner is gonna change how we use our browsers. It's an AI agent that gets things done for you.

Ken Garosci: For for some of the players and so you are right just like that.

Operator: Notebook LN's mind map completely transforms warning.

Operator: Why is this person following me wherever I walk? That's just your shadow.

Ken Garosci: The early early days in Nevada that are aspects about it between expand access grow grow their use cases et cetera, and I think I think that that's out there.

Operator: Wait, it's gonna turn right! AI is completely changing how we fight fires. Generative media is expanding the boundaries of creativity.

Ken Garosci: But I do think it's important it's not just a technology play from Pampa Sul and Mr. Martin on farm up meeting planners and long. So I think that's going to be an important part of that.

Operator: It was magic the first time I saw this. This isn't just another tool. It's a game changer. This is just like mind-blowing to me.

Operator: The potential is almost limitless.

Ken Garosci: Evolution of school.

Ken Garosci: Thank you.

Speaker Change: And our last question comes from Justin Post with B a M. L. Your line is now open.

Speaker Change: Great. Thank you a couple of percent.

Speaker Change: First it looks like the subscription businesses are all tracking well and certainly Gemini two five has got some much. Good reviews. How how are you doing with Gemini subscriptions I know, it's a focus area for the company and anything you can kind of do to accelerate the consumer subscriptions of Gemini within Google one.

Speaker Change: And then and then secondly, just on the course change of Capex, obviously, a bigger increase which appears to be because of cloud demand but.

Speaker Change: Just your comments on cloud our ROI capex.

Speaker Change: Capex ROI, what gives you confidence that youre going to get good returns on that spend thank you.

Speaker Change: Great.

Speaker Change: On the first staying on subscriptions.

Speaker Change: We've definitely Google.

Speaker Change: Google want us being an attractive value proposition powered by storage.

Speaker Change: Now, our AI plans, including growing altra, and particularly with the $2 five see these components.

Jim Friedland: Welcome, everyone. Thank you for standing by for the Alphabet second quarter 2025 earnings conference call. At this time, all participants are in a listen only mode.

Speaker Change: Definitely seen actually good traction so it was a very healthy partner and and and so we are definitely excited about the opportunities ahead.

Jim Friedland: After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone.

Speaker Change: And you will find.

Jim Friedland: I would now like to hand the conference over to your speaker today, Jim Friedland, Head of Investor Relations. Please go ahead. Thank you.

Speaker Change: At this moment I think we will be able to drive growth in that area based on our AI offering for them. So it's definitely an area we are.

Sundar Pichai: Good afternoon, everyone, and welcome to Alphabet's second quarter 2025 earnings conference call. With us today are Sundar Pichai, Philipp Schindler, and Anat Ashkenazi.

Speaker Change: I'm excited by it and we are actually seeing traction, particularly the last corner I ever since we introduced 2.5 Pearl somebody unexciting about about the trajectory there on the Capex on the cloud side look I I think we are definitely investing because.

Jim Friedland: Now I'll quickly cover the safe harbor. Some of the statements that we make today regarding our business, operations, and financial performance may be considered forward-looking. Such statements are based on current expectations and assumptions that are subject to a number of risks and uncertainties. Actual results could differ materially. Please refer to our forms 10-K and 10-Q, including the risk factors. We undertake no obligation to update any forward-looking statement.

Speaker Change: We are delivering a lot of value to our cloud offering and I think it's important to understand.

Speaker Change: You know as the burn more and more of an installed base with Google cloud.

Speaker Change: We have very high customer satisfaction, our churn rates are very low.

Jim Friedland: During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures is included in today's earnings press release, which is distributed and available to the public through our investor relations website located at abc.xyz forward slash investor. Our comments will be on year-over-year comparisons unless we state otherwise.

Speaker Change: And we are much more efficient.

Speaker Change: And the investments needed to grow those businesses, so you're seeing all of that play out in our margin.

Speaker Change: Particularly if you look at it.

Speaker Change: And when he sequentially or in the past.

Speaker Change: Few years, and so and so all of that gives us confidence that we are investing in this we will.

Sundar Pichai: And now, I'll turn the call over to Sundar. Thanks, Jim. Good afternoon, everyone. Q2 was a standout quarter for us with robust growth across the company. As you saw at IOO, we are leading at the frontier of AI and shipping at an incredible pace. AI is positively impacting every part of the business, driving strong momentum. This quarter, search the double-digit revenue growth. Our new search features continue to perform well. AI mode has launched in the U.S. and India and is going well, while AI overviews now has over 2 million monthly users across more than 200 countries and territories and 40 languages.

Speaker Change: We'll be able to.

Speaker Change: How 'bout healthy ROI on our investments.

Speaker Change: Probably in this moment.

Speaker Change: There's definitely a value we are delivering to customers.

Speaker Change: <unk> is also growing significantly on a forward looking basis, and so I think all of that will.

Speaker Change: It will help us.

Speaker Change: Yes.

Speaker Change: Yeah.

Speaker Change: Thank you and that concludes our question and answer session for today I'd like to turn the conference back over to Jim Friedland for any further remarks.

Speaker Change: Thanks, everyone for joining us today, we look forward to speaking with you again on our third quarter 2025 call. Thank you and have a good evening.

Speaker Change: Thank you everyone. This concludes today's conference call. Thank you for participating you may now disconnect.

Sundar Pichai: I'll give some more details on search in a moment. We continue to see strong performance in YouTube as well as subscription. reflecting great momentum across these high-growth businesses. In the U.S., shorts now earn as much revenue per watch hour as traditional in-stream on YouTube. And in some countries, it now even exceeds in-stream strength. CloudHead, another great quarter of strong growth in revenues, backlog, and profitability. annual revenue run rate is now more than 50 billion dollars. We are seeing significant demand for our comprehensive AI product portfolio. Of course, this is all possible because of the long-term investments we have made in our differentiated, full-stack approach to AI.

Speaker Change: [music].

Sundar Pichai: This spans AI infrastructure, world-class research, models and tooling, and our products and platforms that brings AI to people all over the world.

Sundar Pichai: I'll briefly touch on the AI stack before turning to quarterly highlights. Closed. AI infested.

Sundar Pichai: We operate the leading global network of AI-optimized data centers and cloud regions. We also offer the industry's widest range of TPUs and GPUs along with storage and software built on top. That's why nearly all Gen-AI unicorns use Google Cloud. And it's why a growing number, including leading AI research labs like Safe Superintelligence and Physical Intelligence, use TPU-specific.

Sundar Pichai: Our AI infrastructure investments are crucial to meeting the growth and demand from cloud customers.

Sundar Pichai: Next, world-class AI research, including models and tooling. We continue to expand our Gemini 2.5 family of hybrid reasoning models, which provide industry-leading performance in nearly every major benchmark. In addition to improving our popular workhorse model Flash, we debuted an extremely fast Flashlight version. We achieved gold medal level performance in the International Math Olympiad using an advanced version of Gemini with DeepMind. We can't wait to bring DeepThink to users soon. These are some of the best models available today at every price point. Our 2.5 models have been a catalyst for growth, and 9 million developers have now built for Gemini.

Sundar Pichai: I also want to mention Vio3, our state-of-the-art video generation model. It's been a viral hit with people sharing clips created in the Gemini app and with our new AI filmmaking tool, Flow. Since May, over 70 million videos have been generated using VO3. And we recently introduced a feature in the Gemini app to turn photos into videos, which people absolutely love. It's also rolling out to Google Photos users starting today.

Sundar Pichai: Third, our products and platforms. We are bringing AI to all our users and partners through services like Workspace, Chrome, and more. The growth and usage has been incredible. At ION May, we announced that we processed 480 trillion monthly tokens across our services. Since then, we have doubled that number, now processing over 980 trillion monthly tokens, a remarkable increase. The Gemini app now has more than 450 million monthly active users, and we continue to see strong growth and engagement, with daily requests growing over 50% from Q1. In June alone, over 50 million people used AI-powered meeting notes in Google Meet.

Sundar Pichai: And powered by VO3, our new short video product and workspace called Google Maps reached nearly 1 million monthly active users.

Sundar Pichai: This month at Samsung Galaxy Unpacked, we announced new Android and AI features that are available on Samsung's latest devices.

Sundar Pichai: And we are really pleased with the growth in subscriptions, which got a boost from our Google AI Pro and Ultra plan.

Sundar Pichai: Now some key highlights from Search, Cloud, YouTube, and Waymo for the quarter.

Sundar Pichai: First up, this is an incredibly exciting moment for CERT. We see AI powering an expansion in how people are searching for and accessing information, unlocking completely new kinds of questions you can ask Google. Overall queries and commercial queries on search continue to grow year over year. and our new AI experience has significantly contributed to this increase in use. We are also seeing that our AI features cause users to search more as they learn that search can meet more of their needs. That's especially true for the elder users.

Sundar Pichai: Let me go deeper on our new search experience. We know how popular AI overviews are, because they are now driving over 10% more queries globally for the types of queries that show them. And this growth continues to increase over time. AI overviews are now powered by Gemini 2.5, delivering the fastest AI responses in the industry. We also saw strong growth in the use of multimodal search, particularly the combination of lengths of circle to search together with AI overviews. whose growth was most pronounced among younger users. Our new end-to-end AI search experience, AI mode, continues to receive very positive feedback, particularly for longer and more complex questions.

Sundar Pichai: It's still rolling out, but already has over 100 million monthly active users in the U.S. and India. We plan to keep enhancing the AI mode experience for users by shipping great features fast. that includes our advanced research tool DeepSearch and more personalized responses.

Sundar Pichai: Next, Google Cloud. We see strong customer demand driven by our product differentiation and our comprehensive AI product portfolio. Four stats show this. One, the number of deals over $250 million, doubling year over year. Two, in the first half of 2025, we signed the same number of deals, over $1 billion, that we did in all of 2024. Three, the number of new GCP customers increased by nearly 28% quarter over quarter. or more than 85,000 enterprises including LVMH, Salesforce, and Singapore's DBS bank now built with Gemini, driving a 35x growth in Gemini usage year-over-year. Our models have served on our AI infrastructure, which offers industry-leading performance and cost efficiency for both training and inference.

Sundar Pichai: Along with our AI accelerators, we introduced new innovations in storage, including Anywhere Cache, which improves inference latency by up to 70%, and Rapid Storage, which delivers a 5x improvement in latency compared to leading hyperscalers. In addition, we have optimized AI software packages, including PyTorch and JAX, with full open source supports for various AI training and serving demand. We've also integrated AI agents deeply into each of our cloud products. Wayfair is leveraging our databases integrated with AI to streamline data pipelines and deliver more personalized customer experience. Vantel is leveraging our Gemini-powered data agents and BigQuery to review and act on product feedback more quickly.

Sundar Pichai: Target is using our Gemini-powered threat intelligence and security operations agents to improve cyber security. Capgemini is utilizing our AI software engineering agents to deliver higher quality software faster by automating tasks from code generation to test. And BBVA says Gemini and Google Workspace is saving employees nearly three hours per week by automating repetitive tasks. It's now rolling it out to 100,000 employees globally.

Sundar Pichai: We are also focused on building a flourishing AI agent ecosystem. We introduced an open source agent development kit which now has over a million downloads in less than four months. We also introduced AgentSpace, an open and interoperable enterprise chat search and agent platform. Gordon Food Service is bringing agent space to its U.S. employees, which is enabling better, more efficient decision-making. and over 1 million subscriptions have been booked for Agentspace ahead of its general availability.

Sundar Pichai: Turning now to YouTube, Nielsen data shows YouTube has lent you a streaming watch time for over two years. A generation that grew up with YouTube on their devices is now increasingly watching their favorite creators and content on their television. that includes millions of sports fans, too. Globally, they consume more than 40 million hours of sports content on YouTube annually.

Sundar Pichai: And in September, we'll stream the NFL's first Friday game of the season live from Brazil. From sports to shorts, we now average over 200 million daily views on YouTube Shorts. AI is helping improve our recommendations and auto-dubbing, which translates to better returns for creators and brands by dramatically increasing the potential audiences they can reach.

Sundar Pichai: And today, we began rolling out a whole draft of new AI tools for creators on YouTube Show.

Sundar Pichai: And finally, YouTube continues to diversify its subscription options, recently expanding its Premium Lite offerings to 15 new countries, with more to come.

Sundar Pichai: And lastly, Waymo continues to scale and expand to safely serve more riders in more places. Last month, Maymo launched in Atlanta, more than doubled its Austin service territory, and expanded its Los Angeles and San Francisco Bay Area territories by approximately 50%.

Sundar Pichai: MAME also launched teen accounts starting with riders age 14 to 17 in Phoenix. Overall great momentum here. The Waymo driver has now autonomously driven over 100 million miles on public roads. And the team is testing across more than 10 cities this year, including New York and San Francisco. We hope to serve riders in all 10 in the future.

Sundar Pichai: As I said, a standout quarter.

Sundar Pichai: A big thank you, as always, to our employees and partners for an amazing Q2. Turn it over to you.

Philipp Schindler: Thanks, Sundar, and hello, everyone. I'll quickly cover performance for Google services for the quarter, then structure the rest of my remarks around the great progress we're delivering across Search, Ads, YouTube, and Partnerships. Google's services revenues were $83 billion for the quarter, up 12% year-on-year, driven by strong growth in Search and YouTube, partially offset by year-on-year decline in network revenue. To add some further color to our results, the 12% increase in search and other revenues was led by growth across all verticals with the largest contributions from retail and financial services. YouTube saw similar performance across verticals.

Philipp Schindler: Its 13% growth in advertising revenues was driven by direct response, followed by brand. Starting with search and other revenues, which delivered over $54 billion in revenue for the quarter. Shifts like AI are what propels our industry forward. Gemini's native multimodality is helping bring the offline audio and visual world back into the online world, creating a number of opportunities for search. Let me share a few examples. Take visual queries. Google Lens searches are one of the fastest growing query types on search and grew 70% since this time last year. The majority of Lens searches are incremental, and we're seeing healthy growth for shopping queries using Lens.

Philipp Schindler: And you can obviously take this to the next level, by moving from image to video-based capabilities like Search Live. And then there's Circle2Search, which is now on over 300 million Android devices. We've been adding capabilities to help people explore complex topics and ask follow-up questions without switching apps. For example, gamers can now use Circle2Search while playing mobile games to see an AI overview or answer. And just last week, we brought a new agentic capability directly into search for all US users with AI-powered calling to local businesses.

Philipp Schindler: Finally, shopping. We're in Q2. We introduced a virtual try-on experience for Search Labs users in the US. Now people can try billions of clothing products on themselves, virtually. Early results and engagement have been extremely positive, particularly with Gen Z users, and we'll be bringing this functionality to all U.S. users imminently. All these innovations are opening up completely new ways for people to use technology, bringing the offline world into the online world in ways that simply have not been possible before. Add in our amazing AI translation capabilities and just imagine the possibilities. People can access more content in the language and businesses, large and small, international or local, can reach even more customers.

Philipp Schindler: I'm excited about how all of these elements will come together and the opportunities ahead of us in search.

Philipp Schindler: Moving to ads, where a strategy to reinvent the entire marketing process with AI is delivering value for our customers and our business. Last quarter, we introduced AI Max and Search, a new suite of AI-powered features in existing search campaigns. Advertisers that activate AMAX in search campaigns typically see 14% more conversions. On media buying, Smart Bidding Exploration, the biggest update to bidding strategy in a decade, brings better performance to advertisers by allowing them to bid on less obvious but potentially higher value queries more often. Campaigns using Smart Bidding Exploration see a 19% increase in conversions on average.

Philipp Schindler: Demand Gen continues to drive revenue growth and deliver measurable impact for our customers. As an example, Depop, Etsy's resale clothing marketplace, used a shorts-only Demand Gen campaign to drive new customers to the site. Shorts drove 80% higher brand love and double click-through rates versus benchmarks. On creatives, we launched Asset Studio, using our latest models to help businesses, large and small, generate creative assets. Small businesses benefit from top-quality assets and deployment scaling capabilities, while larger businesses can go faster from proof-of-concept to launch and resize at lower costs. Over 2 million advertisers now use Google's AI-powered asset generation tools to run ads, a 50% increase on this time last year.

Philipp Schindler: Turning to YouTube where we saw continued strong revenue growth driven by direct response followed by brand YouTube creators are connected to the global zeitgeist and trusted by their audiences like no other. As part of BrandConnect, we launched Creator Partnership Hub, which allows brands to more easily work with the right creators and tap into cultural moments. We introduced VO3, photo-to-video, and generative effects to shorts, making content creation easier and offering unexplored avenues for creativity. We're seeing both the volume and the price of ads and shorts increase, particularly in developed markets. The feed-based nature of the product allows for more ad opportunities on average, and this growth is further supported by ad formats native to Shorts, AI-powered ad-creative resizing tools, improved ad targeting, and the rise in viewer engagement.

Philipp Schindler: McDonald's USA harnessed the influence of YouTube creators to ignite awareness for the Minecraft movie meal. It leveraged YouTube Shorts partnership ads to increase its reach, generating a 3.3 times higher view-through rate than the industry benchmark.

Philipp Schindler: Finally, on CTV, where the momentum continues. According to the Gage Report by Nielsen, YouTube has been number one in streaming watch time in the US for more than two years, hitting a record high of 12.8% of total TV viewing in June 2025. In the past 12 months, YouTube ads viewed on CTV screens drove over 1 billion conversions. We saw strong growth in retail thanks to CTV shopping ads, which allows viewers to shop directly via QR codes, helping us leverage direct marketing opportunities.

Philipp Schindler: As always, I'll wrap up with the momentum we're seeing in partnerships, where customers increasingly recognize the strength and breadth of Google's ability to help them transform their business with AI. For instance, a new partnership with PayPal will improve the digital commerce experience for their merchants and customers. PayPal will expand its Google Cloud adoption for AI-driven recommendations, transaction processing, and enhanced security. The partnership also broadens the availability and functionality of PayPal's payment services and capabilities across a range of Google products.

Philipp Schindler: In closing, I'd like to thank Googlers everywhere for their contributions and commitment to our success and to our customers and partners for their continued trust.

Anat Ashkenazi: Anat, over to you. Thank you, Philipp. My comments will focus on year-over-year comparisons for the second quarter, unless I state otherwise. I will start with results at the alphabet level and will then cover our segment results.

Anat Ashkenazi: I'll end with some commentary on our outlook for the second half of 2025. We had another solid quarter in Q2, consolidated revenue of $96.4 billion, increased by 14%, or 13% in constant currency. Search and YouTube advertising, subscription platforms and devices, and Google Cloud each had double-digit revenue growth this quarter, reflecting strong momentum across the business. Total cost of revenue was $39 billion, up 10%. TAC was $14.7 billion, up 10%, and other costs of revenue was $24.3 billion, up 10%, with the increase primarily driven by content acquisition costs, largely for YouTube, followed by depreciation. Total operating expenses increased 20% to $26.1 billion.

Anat Ashkenazi: The biggest driver of growth was expense for legal and other matters, which reflected the impact of $1.4 billion charge related to a settlement in principle of certain legal matters. R&D investments increased by 16%, primarily driven by increases in compensation and depreciation expenses. Sales and marketing expenses increased 5%, primarily reflecting an increase in advertising and promotional expenses. Operating income increased 14% this quarter to $31.3 billion, and operating margin was 32.4%. operating margin benefited from strong revenue growth and continued efficiencies in our expense base, partially offset by the legal charge I mentioned earlier, and a significant increase in depreciation expenses.

Anat Ashkenazi: Net income increased 19% to $28.2 billion and earnings per share increased 22% to $2.31. would generate free cash flow of $5.3 billion in the second quarter and $66.7 billion for the trailing 12 months. Free cash flow in the second quarter was affected by a sizable sequential increase in CapEx and cash tax payments as we make federal tax payments in the second quarter for both Q1 and Q2.

Anat Ashkenazi: We ended the quarter with $95 billion in cash and marketable securities.

Anat Ashkenazi: Turning to segment results, Google services revenues increased 12% to $82.5 billion, reflecting strength in Google Search and YouTube advertising and subscription. Google search and other revenues increased by 12% to $54.2 billion. Search and other revenues deliver growth across all verticals with the largest contributions coming from retail and financial services. YouTube advertising revenues increased 13% to $9.8 billion, driven by direct response advertising, followed by brand. Network advertising revenue of $7.4 billion, or down 1%. Subscription, platforms, and devices revenues increased 20% to $11.2 billion, primarily reflecting growth in subscription revenues. This growth was driven by YouTube subscription offerings followed by Google One, with the growth in paid subscriptions being the biggest driver of revenue growth.

Anat Ashkenazi: Google's service operating income increased 11% to $33.1 billion. Operating margin was flat year on year at 40.1%, as healthy revenue growth and continued efficiency in our expense space were partially offset by the legal charge I mentioned earlier.

Anat Ashkenazi: Turning to the Google Cloud segment, which delivered very strong results this quarter. Revenues increased by 32% to $13.6 billion in the second quarter, reflecting growth in GCP across core and AI products at the rate that was much higher than cloud's overall revenue growth. and growth in Google Workspace, driven by an increase in average revenue per seat and the number of seats. Google Cloud operating income increased to $2.8 billion, and operating margin increased from 11.3% to 20.7%. The expansion in cloud operating margin was driven by strong revenue performance and continued efficiencies in our expense base, partially offset by higher technical infrastructure usage costs, which includes the associated depreciation.

Anat Ashkenazi: As we ramp our AI investments, we continue to focus on driving improvements in productivity and efficiency to offset growth in technical infrastructure-related expenses, particularly from higher depreciation. Google Cloud Backlog increased 18% sequentially in Q2 and 38% year-over-year, reaching $106 billion at the end of the quarter. This growth was driven by strong demand for our products and services from both new and existing customers. As Sundar mentioned, we have signed multiple billion-dollar-plus deals in the first half of the year.

Anat Ashkenazi: As to our other bets, in the second quarter, revenue were $373 million, and operating loss was $1.2 billion. Within Other Bets, we're allocating more resources to businesses like Quaymont where we see opportunities to create additional value.

Anat Ashkenazi: With respect to CapEx, in the second quarter, our CapEx was $22.4 billion. The vast majority of our CapEx was invested in technical infrastructure, with approximately two-third of investments in servers and one-third in data centers and networking equipment.

Anat Ashkenazi: In Q2, we returned capital to shareholders through the purchase of stock of $13.6 billion and dividend payments of $2.5 billion.

Anat Ashkenazi: Turning to our outlook, I would like to provide some commentary on several factors that will impact our business performance in the second half of 2025, as well as an updated outlook for full-year CapEx. First, in terms of revenues, we're pleased with the overall momentum we're seeing across the business. At current spot rates, we could see a tailwind to our revenue in Q3. However, volatility and exchange rates could affect the impact of FX on Q3 revenue. As for our segments, in Google services, advertising revenues in the second half of 2025 will be affected by the following, the continued lapping of the strength we experience in financial service verticals throughout 2024, and year-over-year comparisons will be negatively impacted by the strong spend on US selection in the second half of 2024, particularly on YouTube.

Anat Ashkenazi: In cloud, as I mentioned, the demand for our products is high, as evidenced by the continued revenue growth and the cloud backlog of $106 billion. While we have been working hard to increase capacity and have improved the pace of server deployment, we expect to remain in a tight demand-supply environment going into 2026. Moving to investments, given the strong demand for our cloud products and services, we now expect to invest approximately $85 billion in CapEx in 2025, up from a previous estimate of $75 billion. Our updated outlook reflects additional investment in servers, the timing of delivery of servers, and an acceleration in the pace of data center construction, primarily to meet cloud customer demand.

Anat Ashkenazi: Looking out to 2026, we expect a further increase in CapEx due to the demand we're seeing from customers, as well as growth opportunities across the company.

Anat Ashkenazi: We will provide more details on the 2026 CapEx Outlook on a future earnings call. In terms of expenses, first, as I mentioned in our previous earnings call, the significant increase in our investments in CapEx over the past few years will continue to put pressure on the P&L, primarily in the form of higher depreciation. In the second quarter, depreciation increased $1.3 billion year-over-year to $5 billion, reflecting a growth rate of 35%. Given the recent increase in CapEx investments, we expect the growth rate and depreciation to accelerate further in Q3. And second, as we've previously said, we expect some headcount growth in 2025 in key investment areas.

Anat Ashkenazi: In the third quarter, we expect a sequential increase in total headcount additions, due in part to the hiring of new graduates. And third, Q3 will reflect the expense associated with the upcoming August launch of the new Pixel family of products.

Anat Ashkenazi: In conclusion, as you heard from Sundar and Philipp, we're pleased with the momentum in the business and excited about the pace of innovation. Our full stack approach, which combines AI infrastructure, AI research, and AI products and platforms, position us well to deliver new products and services across the company. We're seeing great momentum with our AI efforts, as demonstrated by the increase in cumulative token process. Search revenues are seeing healthy growth, with features like AI Overviews, AI Mode, and Lens offering new ways for users to access information. Cloud has reached an annual revenue run rate of more than $50 billion and is delivering margin expansion while continuing to invest to meet customer demand.

Anat Ashkenazi: and YouTube has expanded its addressable market by building new services like Shorts, which now averages over 200 billion daily views. We're excited to see the value our products and services are bringing to customers and partners around the globe.

Jim Friedland: Now I'll turn the call over to the operator and Sundar and Philipp and I will take your questions. Thank you. As a reminder to ask a question, you will need to press star one on your telephone. To prevent any background noise, we ask that you please mute your line once your question has been stated.

Eric Sheridan: Your first question comes from Eric Sheridan with Goldman Sachs. Your line is now open.

Sundar Pichai: Thank you so much for taking the question. Maybe one for Sundar and one for Philipp. Sundar, when you think about the journey you're on with respect to the evolution of products and platforms, how do you think about some of the implications of change consumer behavior and how investors should think about that from the volume perspective versus the monetization perspective? Because I think there's a lot of longstanding dynamics out there about clicks and click monetization that might be very different when you look out over the next three to five years.

Sundar Pichai: And Philipp, when you think about the evolution of YouTube, you made a number of comments there about subscription revenue. I'm just curious how you think about the mix of advertising versus subscription and what some of your key learnings might've been as the subscription side of the business continues to scale. Thank you. Thanks, Eric. Appreciate the question. Uh, I do think looking ahead, uh, based on everything we are seeing, uh, it's, uh... People are excited about AI. They're adopting it well across our product. For me, you know, just seeing multi-modality, how people have modified their behavior to include images, both through Lens and Circle to Search, seamlessly as part of interacting with Google, you know, are early indications that people are going to be adopting through these moments very, very well.

Philipp Schindler: I think I'm trying to understand your question in terms of about clicks and clicks monetization. Maybe that's something Philipp can touch on. But overall, we expect, as we build out our organic experiences, you know, we have a good understanding of how to continue training on monetization. So that will work well with organic experiences. And what we will need with organic experience. So in terms of newer surfaces like Gemini app, etc, we'll focus on the organic experience for the near term. But just like we are doing with AI all views, and with AI mode over time, you know, we'll be able to bring very, very good commercial experiences there as well.

Philipp Schindler: And we think people will adapt to them as they've always done.

Philipp Schindler: Maybe Philipp can add more. Philipp? Yeah, so on your question on YouTube subscriptions versus ads, look, I mean, we love our ads business. We love our subscription business. YouTube subscriptions are increasingly important for YouTube. We'll definitely continue our long-term focus here. We had a strong growth across YouTube subscription products, which includes, just to be clear, YouTube TV, YouTube Music and Premium. And I think one common theme for our subscription services in general is offering viewers more choice here. We also have a very deep understanding of the monetization side here. Where are we monetizing more with ads?

Philipp Schindler: Where can we potentially monetize more with subscriptions? So I think we will continue this as a double tier strategy actively going forward. Thank you.

Doug Anmuth: Our next question comes from Doug Anuth with JPMorgan. Your line is now open. Thanks so much for taking the questions.

Doug Anmuth: One for Sundar, one for Philipp.

Sundar Pichai: Sundar, can you just talk about how you're thinking about your current access to compute? Even as you spend $10 billion more this year in CapEx, you also said that you're still in a tight supply environment, so you're just trying to marry those. And then Philipp, perhaps on search growth, can you talk a little bit about paid click and pricing growth just within the 12% search growth and how we should think about volume versus monetization trends going forward? Thanks. Doug, thanks.

Sundar Pichai: You know, on the CapEx stuff, you know, obviously, we are... you know seeing strong momentum across across our portfolio and especially in cloud you are right it's a tight supply environment and you know we are investing more to expand but there is obviously a time delay between you know this additional investment will play out in future years and so you know that's that's that's that's why both of them are true at the same time and but we are planning ahead and we are investing and but overall it's exciting to see the traction particularly in cloud I think the comprehensiveness of our AI portfolio the breadth of our offerings um you know both both providing our models on GPUs and TPUs for our customers all of that has been really driving demand and so we are investing to uh to match And on your paid-click question, look, to be very clear, I think we said this before, we manage the business to drive great outcomes for our users and an attractive ROI for our We actually don't manage to pay clicks and CPC targets.

Sundar Pichai: Some of the product and policy changes we make actually drive better monetization at the expense of paid clicks. You will actually see in the 10Q paid clicks were up 4% year on year, but a number of factors affect these metrics from quarter to quarter, such as a few examples, advertiser spending, product changes, policy changes, user engagement, and so on. So it's really important when it comes to paid clicks and CPCs to avoid drawing like overly broad conclusions solely based on these metrics.

Doug Anmuth: Thank you both.

Brian Nowak: Our next question comes from Brian Nowak with Morgan Stanley. Your line is now open. Thanks for taking my questions. I have two.

Brian Nowak: First one, Sundar, there's a lot of discussion about agentic search for commercial activities and agents that can be broadly deployed. Maybe could you just, from a technology perspective, when you sit down with the engineering teams working on some of these new agentic capabilities that could come, what are some of the predominant technological hurdles that you think need to be cleared in order to launch scalable agents for commercial queries is the first one. Then the second one, I think in the past, you've updated us on stats on sources of internal efficiency you've seen from Gen AI enabled capabilities.

Sundar Pichai: Any updates there? And then any sort of learnings on friction points that also need to be overcome for some of these internal tools with Gen AI Thanks.

Sundar Pichai: Thanks, Brian. Let me start with the first one on agentic capabilities. Look, overall, we are definitely, in many ways, when we built 2.5, our series of 2.5 models, particularly with Pro, et cetera, it's the direction where we are investing the most. There's definitely exciting progress, including in the models we haven't fully released yet. And the main gaps we are all trying to do is... You're obviously chaining a sequence of events. And so being able to do it reliably, the latency compounds, the cost compounds. And being able to do it reliably in a way for the users, all of this comes together.

Sundar Pichai: In each of this, we are making progress, and it all needs to kind of hang together. The good news is we are making robust progress. We think we are at the frontier there. And in all of these areas, when you look back in a 12-month basis, you end up making the models much more efficient for any given capability. So the forward-looking trajectory, I think, will really unlock these agentic experiences. We see the potential, being able to do them, but they're a bit slow and costly and takes time and sometimes are brittle, right? But they're making progress on all of that.

Sundar Pichai: And I think that's what will really unlock. And I expect 2026 to be the year in which people kind of use agentic experiences more broadly, right? And so it's an exciting opportunity ahead. On the second part, I think when you say sources of internalization, I presume you're talking about how we are using all of this internally. You know, again, given you asked a question about agents, we are now beginning to roll out agentic coding. journeys for our software engineers within the company. And it's been exciting to see just over the last few months, and particularly over the last few weeks, people are definitely doing more agentic workflows and software engineering as well internally.

Sundar Pichai: And that's a good example of the kind of the same experience as a few months ago had a lot of friction points, but you know, we are overcoming it and people are beginning to use internally on the coding side, as well as in certain other areas of the company as well. So exciting progress, I expect it to be an active area where we will roll out journeys for our users as well. So look forward.

Sundar Pichai: Thanks Sundar, that's great.

Michael Nathanson: Our next question comes from Michael Nathanson with Muffet Nathanson. Your line is now open. Thanks Sundar, I have two for you.

Michael Nathanson: At IO you announced partnership to Warby Parker to develop glasses. So I wonder if you share your view of how important a cycle of new devices will be to further scale AI and do you envision a world in which the mobile phone is no longer central to our consumer experience? That's one.

Sundar Pichai: Secondly, how does Google search with AI mode usage different versus Gemini standalone apps? I'm wondering, do you see any differences in usage or the types of consumers who go to the app versus who go to traditional search with AI? Thanks, Michael. On the first thing, look, I think... Any time I.O. changes, you can drive new experiences, including on hardware experiences, too. So I think AI will particularly enable—we've long had the promise of glasses and out-of-form factors, but I think AI will spur a whole new wave of innovation there. We are super excited about our investment in glasses, and I found the experiences have taken a dramatic step up compared to the last iteration.

Sundar Pichai: So I think it will be an exciting new emerging category, but I still expect phones to be at the center of the experience for the next two to three years at least. And so I still think that's going to be phones would continue to be at the center of the consumer experience. But we are excited about the emerging categories as well. On your second question on AI mode versus Gemini standalone app, broadly, There are some use cases where you can get a great experience in both places. But there are use cases which are very specific.

Sundar Pichai: I think where the queries are information-oriented, but people really want to rely on the information, but have the full power of AI. I think AI mode really shines in that. You can go there, and you know it's backed up. The Gemini models are using search deeply as a tool. And so it's all grounded in that search experience. And I think users are responding very positively to it. And there's a Gemini standalone app. You see everything from people can have a long conversational chat just trying to pass time in the Gemini app. You've seen early cases where people may get into it in a therapy-like experience.

Sundar Pichai: So these are all emerging experiences of what people do. And I think this is why I'm glad we have both surfaces, and we can innovate in both of these areas. And of course, there'll be areas which will be commonly served by both applications. And over time, I think we can make the experience more seamless for our users.

Sundar Pichai: Thanks, Sundar.

Mark Shmulik: Our next question comes from Mark Shmulik with Bernstein. Your line is now open. Yes, thanks for taking the question.

Mark Shmulik: Sundar, it seems there's almost like a daily news report about, you know, the AI talent war and high-profile folks moving around, which is kind of like your perspective and how you think Google's been doing it, both kind of attracting and retaining key AI talent, and along the similar lines, how do we think about AI-related resourcing costs alongside kind of the step-up in capital investments required to go build for AI? Thank you. Mark, on the first question, look, I think, you know, we've gone through these moments before. We've obviously always deeply invested in talent, including in AI talent for well over a decade now.

Sundar Pichai: And I think we have an extraordinary both breadth and depth of the talent. In my experience, You know, the top people look for a combination of they want to really be at the frontier, driving progress. And so the mission and the and how state of the art your work matters. So that's super important to them, access to compute resources and access to your peers, right? Working with the best, best people in the industry. And it's a combination of all of that and using it to drive impact. And I think we are pretty competitive on all those fronts.

Sundar Pichai: And, you know, through through this moment, we continue to look at both our retention metrics as well as the new talent coming in. And both are healthy. You know, I do know individual cases can make headlines, but when we look at look at numbers deeply, I think we are doing very well through this moment. And we'll continue investing in the people and the talent and the compute needed to make sure we are set up for the opportunity.

Anat Ashkenazi: And maybe I'll pass it on to Anant. Yeah, the question on how we integrate this into our overall cost structure. And I've mentioned before having the benefit of having the full stack includes research, which is our people and one of our most critical resource. So we make sure that we invest appropriately to have the best, brightest minds in the industry sitting here at Google and advancing our innovation to customers. It is part of what you're seeing now in our operating expense line across the organization. But we're also working hard to offset not just growth and investment across the business, but also to ensure that we can allocate research appropriately.

Anat Ashkenazi: So Sundar mentioned earlier the use of AI tools within the company. So that's another area where we can drive efficiency across the business is to use these tools internally in terms of how we run the organization. And then we're continuing on the same efforts that I've talked about before with regards to running the company with a high level of discipline and execution and driving efficiency across the business.

Ross Sandler: Our next question comes from Ross Sandler with Barclays. Your line is now open. Great.

Ross Sandler: If I can have two, that'd be great. So the first one's on search click-through rates as a driver of monetization. So you guys have done a great job over the past decade of driving better ad relevancy and higher click-through rates in search. Just curious, as we look forward and we see lower ad impressions per SERP and all these things that are changing with AI overviews and different AI search formats, how do you feel about your ability to drive CTR going forward?

Philipp Schindler: And then the second question is, it looks like you're now working with open AI for some aspect of cloud infrastructure. Just curious how that relationship might expand in the future. Thank you.

Philipp Schindler: I can make the first one. Look, specifically referring to the AR reviews, if I understood your question correctly, Sundar mentioned it. They continue to drive higher satisfaction. They continue to drive higher search users. They're scaling up very nicely. And they're actually working for our entire user base now, scaled to over 2 billion users in over 200 countries. So very happy with this development. But when it comes specifically to the monetization of it, we talked about it before. We see monetization at approximately the same rate, which gives us actually a really strong base on which we can then innovate and drive actually a more innovative and new and next generation ad format.

Philipp Schindler: That's how we look at it at this moment in time.

Philipp Schindler: For the second part, with respect to OpenAI, we're very excited to be partnering with them on Google Cloud. Google Cloud, you know, is an open platform and, you know, we have a strong history of supporting great companies, startups, AI labs, etc. So super excited about our partnership there on the cloud side. And, you know, we look forward to investing more in that relationship and growing there.

Mark Mahaney: Our next question comes from Mark Mahaney with Evercore. Your line is now open.

Philipp Schindler: Okay, two questions, please. First, can you just describe, maybe, Philipp, what you see in terms of the ad environment, maybe for the back half of the year, you know, maybe versus last year? Does it seem as, you know, certain or as uncertain as it was last year? The results seem pretty strong. Are there any, any, any unusual concerns you would have for the back half of the year?

Sundar Pichai: And then Sundar, I want to ask you again about the two surfaces approach to search. And, you know, you obviously got some, you must have some internal metrics that tell you that that's, that that's the optimal way for you to approach the market. But, you know, there's, I'm sure there's a counter argument that just having that unified search and being able to discern the intent of the search, whether it's pure information or commercial, just from the query, that that could give you a material advantage over other offerings in the market. Just talk a little bit about what metrics you've seen that, that make it, that make the two surface solution seem to be optimal.

Sundar Pichai: Thank you.

Ken Gawrelski: So let me start. Look, we said our ad business performed strongly in Q2, give you maybe some vertical color of it. In Q2, search and other performance was led by growth across all verticals. We mentioned the largest contributions from retail and financial services, which was primarily due actually to strength and insurance. We saw healthcare as a sizable contributor to growth as well.

Anat Ashkenazi: Look, we're only a few weeks into Q3. So I think it's really too early to comment on anything happened in the second half of the year. And, Mark, on the second part of the question, look, I think... you know the between these two surfaces you pretty much you know you're covering the entire breadth and depth of what uh you know humanity can possibly do so i think there's plenty for two surfaces to tackle at this moment um obviously uh you know you are right you know search is more information focused and we think of the Gemini app as more your assistant more personal proactive and powerful assistant for every aspect of your daily life and so you can imagine wanting to code deeply or create a long video etc like you know those those things can be done by the Gemini app today better.

Sundar Pichai: Over time, like we've always done, we've gone through these evolutions before, like as you point out, you know, we can understand user intent better and abstract some of the complexity for our users. At one point, people used to go to, you know, query separately for text, differently from images, differently from videos, etc. And we kind of made it all seamless with universal search. So we have the experience of being able to bring together experiences in a way that makes sense for users. And do the heavy lifting for them. But I think, you know, when you're in this early stage of new emerging paradigms, I think we want to make sure, you know, we can meet them where they're, what they are expecting today.

Sundar Pichai: And over time, I think it will give us an opportunity to serve them better. So I think that's how we are thinking about.

Sundar Pichai: Okay, thank you.

Justin Post: Our next question comes from Ken Gawrelski with Wells Fargo.

Justin Post: Your line is now open. Thank you very much. Two, if I may, please. The first on cloud, I'm just hoping maybe you could clarify your back half outlook. Given last quarter, you talked about some supply constraints that would ease towards the end of 2025. But yet you put up a really nice acceleration in 2Q. Now you're talking about some supply constraints easing into 26. If you could just clarify a little bit on the back half outlook for cloud, given the strong results in 2Q.

Sundar Pichai: And then the second is a bigger picture question, which is an agentic experience. Does it democratize the web like Search did two decades ago, enabling discovery in the long tail? Or does it lead to more concentration with a smaller group of vertical winners? Would love it if you could opine on that. Thank you.

Anat Ashkenazi: Okay on your first question on the cloud second half outlook and the comments I previously made on with regards to where we're going to see the capacity increase. So obviously we're working hard to bring more capacity online which means data centers and servers are coming online and we see more of an increase towards the back end of the year but we're increasing capacity with every quarter that goes by as you can see with the growth rates we've had both this quarter and in the previous quarter. As Sundar mentioned earlier this is not the type of investment that's a light switch it takes time to make this investment so what you're seeing now is investment we made some time ago that's now translating to additional capacity coming online but more of that towards the back end of the year.

Anat Ashkenazi: I will say it's important as you think about cloud growth not to think about this in a linear fashion because the quarter and quarter growth rates could depend on the timing of capacity delivery and when that comes online so that could move a little bit from from quarter to quarter.

Sundar Pichai: on the on agentic experience. Okay, I think those earlier questions on the technology aspects of it and how we are making progress. Obviously, there's the value proposition for all the players involved. And I think that's going to be an equally important thing to create the unlock here. And I do think, you know, our time users will You know, it's clear to me as you make progress on the agentic experience, it's going to be a much better experience for users, right? And so you will find savvier players leaning into these experiences and that will help them grow and meet this moment.

Sundar Pichai: And I think, so I do think it's an opportunity for some of the players. And so you are right, just like the early days of the web, there are aspects about it, which will expand access, grow the use cases, etc. And I think that elements are there, but I do think it's important. It's not just a technology play, but we have to solve the business models for the varying players involved. So I think that's going to be an important part of this evolution as well.

Sundar Pichai: Thank you.

Sundar Pichai: And our last question comes from Justin Post with BAML. Your line is now open. Great, thank you. A couple for Sundar. First, looks like the subscription businesses are all tracking well, and, you know, certainly Gemini 2.5 has got some much good reviews. How are you doing with Gemini subscriptions? I know it's a focus area for the company and anything you can kind of do to accelerate the consumer subscriptions of Gemini within Google One. And then secondly, just on the course change of CapEx, obviously a bigger increase, which appears to be because of cloud demand, but just your comments on Cloud ROI, and I'm sorry, CapEx ROI.

Sundar Pichai: What gives you confidence that you're going to get good returns on that spend? Thank you.

Jim Friedland: Thank you and that concludes our question and answer session for today. I'd like to turn the conference back over to Jim Friedland for any further remarks. Thanks everyone for joining us today.

Operator: We look forward to speaking with you again on our third quarter 2025 call. Thank you and have a good evening. Thank you, everyone. This concludes today's conference call. Thank you for participating. You may now disconnect.

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