Alphabet Q3 2025: AI momentum drives broad-based growth

Alphabet’s quarterly revenue exceeded US$100 billion for the first time in Q3 2025, marking a significant increase from about US$50 billion five years ago and reflecting double-digit growth across most segments. The company continues to leverage AI to enhance user experiences, improve advertiser returns, and drive enterprise adoption.

Each of Alphabet’s thirteen product lines now generates more than US$1 billion in annual run rate. Google Services revenue rose 13.8% year-on-year in Q3 2025, driven by double-digit growth across all segments except Google Network. Growth in Search and YouTube ad revenue was broad-based across major verticals, led by retail and financial services, followed by healthcare. Additionally, YouTube advertising revenue grew 15.0%, driven primarily by direct response, followed by brand advertising. Revenue from Google subscriptions, platforms, and devices increased 20.8% year-on-year, supported by robust growth in YouTube and Google One subscriptions.

Traffic acquisition costs rose 8.4% to US$14.9 billion, while other cost of revenues increased 16%, driven by higher YouTube content acquisition costs as well as greater depreciation and infrastructure expenses. The quarter also included a one-time US$3.5 billion European Commission fine.

Alphabet continues to scale its AI ecosystem across ads, infrastructure, and products. AI Max, launched globally in September, has become the company’s fastest-growing AI-powered search ads product, unlocking billions of new queries and expanding advertiser reach.

The Gemini platform is scaling rapidly, now processing 7 billion tokens per minute and over 1.3 quadrillion monthly tokens across all surfaces—representing more than 20× year-on-year growth. Gemini serves 650 million monthly active users, with query volume tripling quarter-on-quarter.

To meet surging AI demand, Alphabet is expanding its infrastructure footprint, deploying NVIDIA GB300-powered A4X Max instances and preparing to launch its seventh-generation Tensor Processing Unit (TPU), Ironwood. Partner demand remains strong, highlighted by Anthropic’s plan to access up to one million TPUs. The company continues to improve technical infrastructure efficiency, particularly in its self-built data centres, to ensure effective capital deployment.

Capital expenditures (CapEx) totalled US$24 billion in Q3 2025, with the majority directed toward technical infrastructure—approximately 60% for servers and 40% for data centres and networking equipment. Full-year 2025 CapEx is projected to range between US$91 billion and US$93 billion, up from the prior forecast of US$85 billion, and is expected to trend higher significantly in 2026. Correspondingly, depreciation expenses will rise, while capacity constraints are expected to persist through Q4 2025 and into 2026.

During the quarter, the company spent US$11.5 billion and US$2.5 billion on share buybacks and dividend payments respectively.

Alphabet expects to benefit from a foreign exchange tailwind in the upcoming quarter but cautioned that year-over-year advertising comparisons will be affected by elevated U.S. election spending in 2024, particularly on YouTube. The company also anticipates higher sales and marketing expenses in Q4 to support product launches and holiday-season demand.

Google Services: Search & Other

Search activity continued to accelerate in Q3, driven by AI Overviews and AI Mode. AI Overviews now has over 2 billion users and is contributing to strong query growth, particularly among younger users. AI Mode, rolled out globally across 40 languages, serves 75 million daily active users with usage doubling over the quarter. Both features are driving higher engagement and incremental query growth, with early ad tests showing comparable monetisation rates for AI Overviews comparable to traditional search. Chief Business Officer Philipp Schindler sees potential for additional ad placements across these two AI features. Paid clicks and cost-per-click each rose 7% year-on-year.

Some recent commerce innovation includes conversational searching via AI Mode and the introduction of agentic checkout features that streamline the purchase process.

Google Services: YouTube Ads

According to Nielsen, YouTube has led U.S. streaming watch time for over two years. In September 2025, it broadcast the NFL for the first time, attracting more than 19 million viewers—a record for the highest number of concurrent live stream viewers on the platform. All ad inventory for the event was sold out within weeks.

For every hour users spend watching Shorts, the company earns more total ad revenue than it does per hour of traditional long-form in-stream viewing in the US. Shorts also has a lower payout rate to creators, which means the company earns a higher gross margin on that revenue.

AI-driven recommendation systems and tools continue to enhance YouTube engagement and monetisation. Gemini-powered insights improve content discovery, while new generative video and editing tools streamline creation and make videos more shoppable. Adoption of Demand Gen among small and medium-sized advertisers delivered over 40% higher conversion value, while interactive direct response ads in the living room—considered a long-term growth bet—achieved an annual revenue run rate exceeding US$1 billion globally.

Google Service: Subscriptions, Platforms, and Devices

At Made by Google, the company unveiled the Pixel 10 series, powered by its new Gemini Tensor G5 chip. Alphabet also introduced Android XR, a new operating system for headsets and glasses. The first device using it is Samsung’s Galaxy XR, which runs on Gemini. Subscription revenue continued to grow and surpassed US$300 million, led by YouTube Music, YouTube Premium, YouTube TV, and Google One.

Google Cloud

Google Cloud continued to deliver strong revenue growth and margin improvement amid robust demand for its services. The number of new Google Cloud Platform (GCP) customers rose nearly 34% year-on-year, with more billion-dollar deals signed year-to-date than in the previous two years combined. Over 70% of existing customers now use Google’s AI products, contributing to more than 200% year-on-year increase in revenue from generative AI offerings. Major clients such as HCA Healthcare and Macquarie Bank have adopted Google Cloud, alongside nine of the world’s top ten AI labs. The new Gemini Enterprise platform gained 2 million subscribers across 700 companies shortly after launch, underscoring strong enterprise adoption of Google’s AI solutions.

GCP continued to outpace overall Cloud revenue growth, while Workspace maintained double-digit expansion driven by higher average revenue per seat and rising user numbers. There is strong demand for enterprise AI infrastructure—including TPUs and GPUs—as well as solutions built on Gemini 2.5. Cloud backlog rose 46% quarter-over-quarter and 82% year-on-year to US$155 billion, reflecting Google Cloud’s expanding pipeline of large-scale AI and infrastructure contracts.

Other Bets

This segment’s operating loss widened to US$1.4 billion in the quarter. Waymo, Alphabet’s autonomous driving subsidiary under Other Bets, is expanding internationally to Tokyo and has secured approval to operate fully autonomously at San Jose and San Francisco airports. It is also testing in New York City and plans to launch in London, Dallas, Nashville, Denver, and Seattle. Additionally, Waymo introduced new services such as Waymo for Business and Waymo Teens to target different customer segments.

Key analyst questions

Alphabet emphasised ongoing cost discipline and efficiency gains across its operations. Key initiatives include moderating headcount growth and optimising real estate to manage expenses, alongside the increasing use of AI to enhance productivity. Nearly half of Google’s code is now AI-generated, accelerating development cycles, while internal use of Gemini has boosted sales team productivity by over 10%, contributing hundreds of millions of dollars in incremental revenue. Gemini-powered solutions have also handled over 40 million customer support sessions this year, automating the resolution of hundreds of thousands of inquiries.

CEO Sundar Pichai said Google is evolving Search and Gemini to meet changing user needs through AI Overviews and AI Mode, aiming for a more integrated, intuitive experience similar to how Universal Search merged separate search types — like images, videos, news, and web pages — into a single, unified results page. Gemini enables a more personal and proactive AI assistant, complementing Search to serve a broader range of user intents. He noted this is an expansionary moment, with higher user engagement that will naturally lead to more commercial opportunities over time.

The management relies on ‘a twin engine monetisation strategy’ to keep YouTube relevant and profitable by combining its advertising business and subscription services. Both YouTube advertising and subscriptions grew strongly in the quarter. YouTube Music and Premium subscribers generate significantly higher gross profit and deliver more value to creators and partners than ad-supported (free) users.

The fifth perspective

Alphabet continues to balance long-term growth with near- and mid-term customer demand across its major investments. Management remains confident in sustained AI infrastructure demand, expanding monetisation opportunities in Search and YouTube, and the long-term profitability of its disciplined investment strategy.

Looking ahead, Alphabet will focus on advancing and integrating AI capabilities across its products and platforms. The company is also developing agentic AI experiences to help users complete complex tasks in commerce and travel, supported by deeper ecosystem partnerships.