Google parent to hike its spending to $85 billion in 2025 as AI race heats up

Reuters photo

Google parent Alphabet has raised its capital spending plans for 2025 to $85 billion from $75 billion, chief executive Sundar Pichai said on July 23, as the artificial intelligence (AI) arms race intensifies among tech giants.

Pichai said this increase in investment follows a "strong and growing demand" for the company's cloud products and services whose annual revenue run-rate is now more than $50 billion.

For the quarter ended June 30, 2025, Google's cloud unit saw a 32 percent increase in its revenues to $13.6 billion, driven by growth in Google Cloud Platform (GCP) across core GCP products, AI Infrastructure, and Generative AI Solutions.

This surge, along with a double-digit revenue growth in its flagship Search business on back of new AI features such as AI Overviews and AI Mode, led to Alphabet reporting a 14 percent increase in its revenues to $96.4 billion for the quarter.

"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," Pichai said.

Read: Google I/O 2025 was a litmus test. Did Sundar Pichai deliver?

This move comes amid a rapidly escalating AI arms race, as tech giants Google, OpenAI, Microsoft, and Meta seek to outdo one another in debuting their next-generation frontier models and consumer offerings.

In April, Meta also raised its 2025 spending forecast to between $64 billion and $72 billion, up from its previous range of $60 billion to $65 billion. Microsoft has earlier stated plans to spend $80 billion in AI infrastructure this year.

In the company's earnings call, Alphabet CFO Anat Ashkenazi stated that the updated forecast reflects additional investment in servers, the timing of delivery of servers, and an acceleration in datacentre construction to primarily meet the cloud customer demand.

Capital spending is set to further increase in 2026 due to customer demand and growth opportunities across the company, Ashkenazi said.

Over the past year, Google has released a slew of new AI-powered products and rapidly integrated these capabilities across its product suite amid intensifying competition.

The tech giant has also moved to monetising its AI offerings through ads and subscriptions, in addition to its cloud services. It has introduced ads in AI Overviews in the United States, with plans to expand to other markets, including India, later this year. Google has also started testing ads in AI Mode, its answer engine–style search experience.

In May, Google also unveiled a new $250 monthly subscription tier, Google AI Ultra, which offers early access to its experimental AI products and features, as well as the highest level of access to the company's AI models and services.

During the call, Pichai said they are seeing "accelerated traction" across both of their AI plans — AI Ultra and AI Pro, which costs $20 per month — particularly in the past quarter, following the introduction of its Gemini 2.5 series of models.

Google's subscription, platforms, and devices revenue increased 20 percent to $11.2 billion for the quarter, with growth in paid subscriptions being the biggest driver. As of April this year, the company had 270 million paid subscriptions across Google One and YouTube.