Alphabet: The Alphabet of Innovation

Alphabet's Q2 2025 results showcase how AI integration is driving real business value across all segments. With Gemini 2.5 models leading industry benchmarks and processing over 980 trillion monthly tokens (doubled since May 2025), the company has achieved true AI-powered monetisation. AI Overviews now serve 2 billion users globally, with evidence showing they drive 10% more queries for relevant searches, while advertisers using AI Max see 14% more conversions.

Google Cloud's 32% growth to $13.62 billion in Q2 2025 reflects genuine enterprise adoption, with the business now exceeding a $50 billion annual run rate. The $32 billion Wiz acquisition strengthens Google's multicloud security offerings, with management signing the same number of $1+ billion deals in H1 2025 as all of 2024. Cloud backlog reached $106 billion, up 38% year-over-year.

YouTube advertising revenue grew 13% to $9.8 billion in Q2 2025, with Shorts now earning equivalent revenue per watch-hour as traditional formats in the US. The platform averages over 200 million daily Shorts views, while AI-powered features like auto-dubbing and content translation expand creator monetisation globally.

• Gemini 2.0 Ultra Launch: Gemini 2.0 Ultra’s advanced reasoning and top performance in the International Mathematical Olympiad highlight Google’s AI leadership, set to boost B2B adoption and clearly differentiate it from OpenAI and others.

• DOJ Antitrust Ruling: A decision by late July/early August 2025 could impact up to 20% of global gross profit, forcing changes to search deals, especially with Apple. Expect market volatility with both risks and relief rally potential around the announcement.

• Agentic AI Breakthrough: CEO Pichai predicts that by 2026, widespread use of AI agents will reshape user interaction. Google’s ecosystem is positioned to lead this shift, unlocking new revenue streams and disrupting how people engage with technology.

• Wiz Integration Impact: The £25.6 billion Wiz acquisition, closing in 2026, will strengthen Google Cloud’s security and multi-cloud features. This addresses a key gap, enhancing competitiveness with AWS and Azure and accelerating enterprise adoption.

• Quantum Computing Commercialisation: Google’s quantum breakthroughs are nearing commercial rollout, with major implications for cryptography, drug discovery, and finance. Successful commercialisation could unlock multibillion high-margin revenues over the decade.

• Regulatory Resolution and Clarity: Implementing antitrust remedies will bring long-term operational clarity, lifting regulatory uncertainty and supporting higher valuation multiples. A favourable outcome would confirm Google’s business model and enable bold investments.

Alphabet faces unprecedented regulatory pressure after major DOJ wins in 2025, including a ruling that it illegally monopolized ad markets. Remedies may force the sale of ad tech, a Chrome spin-off, and end exclusive search deals with Apple and Samsung (£26+ billion annual value). EU Digital Markets Act probes could impose up to 10% of global turnover in penalties and require deep business restructuring, threatening core revenue streams across search, ads, and AI.

While it leads with Gemini 2.5, rivals like Microsoft (via OpenAI), Amazon (Anthropic), and new entrants like Perplexity are quickly advancing, attracting both customers and top researchers. Google’s July 2025 £1.9 billion WindSurf acquisition underscores escalating talent costs. In cloud, AWS retains a 30% share, Azure 21%, and Google trails at 12%. Without continued innovation, Google risks losing its AI edge to nimbler competitors.

Alphabet’s £67 billion CapEx for 2025, up 13%, backs AI infrastructure and data centers. Yet, ongoing “tight demand-supply” markets and uncertain AI adoption raise the risk of underused assets. If demand doesn’t materialize or rivals outperform, these huge investments may impair margins and shareholder returns.