Alphabet Q1 2025 earnings call: AI and cloud drive double-digit gains

The first quarter of 2025 saw Alphabet capitalising on significant demand for its cloud solutions while solidifying its position as a leader in AI, as showcased at Google Cloud Next. With a differentiated full-stack approach to AI at its core, the company’s growth strategy is firmly centred on its advancements in this transformative technology.

Overall revenue increased 12.0% year-on-year to US$90.2 billion in Q1 2025, driven mainly by the growth in revenue from Google Search & Other as well as Google Cloud.

Google Search & Other segmental revenue growth was led by the financial services sector due to strength in the insurance industry followed by retail, healthcare, and travel. YouTube’s continued growth was fueled by robust growth (primarily from direct response, followed by brand) in ads and subscriptions. The number of paid subscriptions continued to increase and was over 270 million in Q1 2025, driven by YouTube and Google One.

The growth in Google Cloud Platform, across both core and AI products, outpaced the overall Google Cloud segment. Google Workspace also saw revenue growth, supported by higher average revenue per seat. As a result, Google Cloud’s operating income surged 141.9% year-on-year to US$2.2 billion in Q1 2025, with its operating margin expanding from 9.4% in Q1 2024 to 17.8%.

Total cost of revenue increased 7.9% year-on-year to US$36.4 billion in Q1 2025, driven mainly by higher YouTube content acquisition costs as well as 31.5% year-on-year growth in depreciation charges related to its infrastructure investment. Although network revenues declined, this actually helped to offset the overall increase in cost of revenues due to their significantly higher traffic acquisition costs. As a result, operating income increased 20.2% year-on-year to US$30.6 billion in Q1 2025 while operating margin expanded from 31.6% in Q1 2024 to 33.9% in Q1 2025. The expenses growth was offset by a lower overall increase in headcount and compensation expenses as well as the ongoing office optimisation. Net income increased 46.0% year-on-year to US$34.5 billion in Q1 2025.

Capital expenditure in Q1 2025 amounted to US$17.2 billion as Alphabet continued to invest in infrastructures, mainly in servers followed by data centres. The full-year capital expenditure is expected to reach US$75 billion, an increase from over US$50 billion in 2024. The corresponding depreciation expenses will also follow. These investments are flexible and can be repurposed across different business segments.

Alphabet is focused on using AI to address advertiser pain points across ad creation, distribution, and measurement. This includes AI-powered audience insights, creative generation, and media buying optimization in tools like PMax and Demand Gen. Notably, Demand Gen campaigns saw an average 26% year-over-year increase in conversions per dollar spent (over 2x with product feeds).

During the quarter, Alphabet spent US$15.1 billion buying back its shares and distributed US$2.4 billion worth of dividend to shareholders. The company has also recently announced a US%70 billion share buyback and increased its quarterly dividend by 5%.

Google Services: Search & Other

Google Search has a massive global user base, with over two billion users engaging daily, resulting in more than five trillion searches annually. Usage continues to grow, accompanied by rising user satisfaction.

AI Overviews can handle a wide range of multimodal (text, image, and voice) queries. Currently, AI Overviews has over 1.5 billion monthly users and is available in more than 15 languages across 140 countries. Chief business officer Philipp Schindler described Q1 2025 as the largest expansion to-date for AI Overviews in terms of new user adoption. The feature will be progressively rolled out to more countries and users. It is currently monetized at about the same rate as traditional searches. It is worth noting that the volume of commercial enquiries has increased.

In terms of visual queries, Circle to Search is now on over 250 million devices, with usage up nearly 40% this quarter, and Lens visual searches have increased by 5 billion monthly since October. There was more than 10% year-on-year growth in the number of people shopping on Lens. Most of these visual searches are not cannibalising traditional searches.

In late 2024, Google launched ads within AI Overviews on mobile in the U.S., expanding on their existing practice of showing ads above and below standard search results. Schindler did not provide further disclosure on the click-through and conversion rates of AI Overviews.

An experimental AI Mode was released in March 2025. The new feature can handle more complex tasks and queries. It can provide product comparisons and responses faster and of higher quality. On average, the length of AI Mode queries is doubled as traditional Search ones. Early positive feedback has been received. AI Mode is positioned to provide users with an ‘AI forward experience’ and for early agentic workflows.

Schindler explained that the removal of the de minimis exemption may pose a slight headwind to Alphabet’s advertising business. As APAC-based retailers will face new duties and fees when shipping low-value goods to the U.S., the higher price tags potentially mean lower sales volume, reduced ad spending, and shift in advertising focus.

Google Services: YouTube Ads

2025 marked the 20th anniversary of YouTube. Today, creators upload more than 20 million videos to the YouTube daily, which speaks volume of the platform’s relevance even after 20 years. Most viewers in the US watch YouTube on connected TVs. According to Nielsen, YouTube topped the streaming watch time chart in the US for two years.

Shorts total views improved more than 20% in Q1 2025 as its monetization rate is improving especially in the U.S. The number of monthly active podcast users on YouTube has crossed the 1 billion mark while YouTube Music and Premium has garnered more than 125 million subscribers globally.

Brands and creators continue to collaborate on the platform. For example, Toyota worked with Zach King, who is famous for his Shorts that uses editing to create illusions to lift the former’s brand awareness by 25%. In Q1 2025, the reservation-based ads business more than doubled year-over-year. To reach target audience like Gen Z gamers, immersive ads have also been implemented within Roblox via Google Ad Manager.

Google Services: Subscriptions, Platforms, and Devices

The management said the Pixel 9a phone was well-received. According to Statista, Pixel’s smartphone market share in Canada and the US remained small stood at 5.5% and 4.5% in 2024.

Different YouTube subscription options are also now available to cater to different groups of consumers including the recently launched Premium Lite in the US that is mostly ad-free.

Google Cloud

Google Cloud is a key pillar of Alphabet’s business and serves as the foundational infrastructure for AI. It offers flexible deployment options, including on-premises and in-country solutions, while maintaining scalability and cost competitiveness.

Alphabet’s robust infrastructure underpins its leading AI capabilities, boasting over 2 million miles of fibre and 33 subsea cables. Google Cloud offers the industry’s widest range of Tensor Processing Units (TPUs) and Graphics Processing Units (GPUs), including Ironwood, its seventh-generation TPU. Ironwood is designed for inference, which delivers over a 10x improvement in compute power and is nearly twice as power efficient as previous high-performance TPUs. Its strategic partnership with NVIDIA is a key competitive advantage, positioning Google Cloud as the first provider to offer their current B200 and GB200 Blackwell GPUs, as well as the next-generation Vera Rubin GPUs.

All 15 of Alphabet’s products now integrate Gemini. Since the start of 2025, the number of active users on AI Studio and the Gemini API has more than tripled. Gemini is also expanding its reach, becoming available on tablets, cars, and devices such as headphones and smartwatches.

Alphabet highlighted the growing adoption of its Vertex AI platform, which offers over 200 foundation models[CS7] , including industry-leading models from the Gemini family such as 2.5, 2.5 Flash, 2.5 Pro, and Gemini Live, image and video generation models like Imagen 3 and Veo 2 as well as open-sourced ones like Gemma 3, Llama 4, and Anthropic. Google Workspace is also seeing significant AI integration, delivering over 2 billion AI assists monthly. Finally, Alphabet announced its intent to acquire Wiz, a leading cloud security platform, to enhance their cybersecurity offerings across multi-cloud environments.

Google’s cloud operations remain capacity-constrained, with demand continuing to outpace supply. As a result, segmental revenue may fluctuate depending on the timing of new capacity becoming available.

Other Bets

Waymo is one the more established companies under Alphabet’s Other Bets. It specializes in autonomous driving and currently offers autonomous ride-hailing services in several cities of the U.S. Waymo has been rolled out in Silicon Valley. It is going to expand its service to Austin and is gearing up for launch in Atlanta in summer 2025 via Uber. Hailed as the ride-hailing city, Washington, DC ride-hailers will be able to experience Waymo in 2026 alongside Miami.

The number of weekly paid passenger trips on Waymo, surged fivefold year-on-year. The company will focus on airport access and freeway driving and work with car manufacturers like Toyota to promote autonomous ride-hailing services. CEO Sundar Pichai is open to Waymo’s future business models including private vehicle owners. Waymo also partnered with Moove in Phoenix and Miami.

The fifth perspective

In summary, Alphabet’s overall business shows stability, though the management’s responses to analyst inquiries lacked desired clarity in certain areas. The growth of its advertising business in 2025 is expected to be tempered by the strong prior-year performance in the financial services sector.