Cloud Demand Outpacing Supply
This creates a powerful position for Google. Even if Google doesn't win every AI application battle, it can still win by owning the infrastructure everyone builds on.
The company's Cloud business now has $155 billion worth of future customer commitments lined up—that's up 46% from just three months ago. When Google's Cloud leader says they "have more demand than capacity," it means customers want to use Google's services faster than Google can build out the infrastructure. That's a good problem to have.
What makes this quarter a turning point:
- Search remains dominant with 15% growth, proving AI features enhance rather than replace the core business
- Cloud accelerated to 34% growth with $155 billion in committed future revenue from enterprise customers
- Gemini AI reached 650 million monthly users while processing 7 billion transactions per minute
- Profit margins improved across the board despite massive infrastructure investments
Search Proves More Resilient Than Expected
The search business proved surprisingly strong. Despite fears that AI chatbots would kill traditional search, Google Search actually grew 15% this quarter even as 1 billion users now see AI-powered answers.
Rather than replacing regular search, AI features are making people search more often and ask more complex questions. Importantly, the ads shown alongside AI answers make about the same amount of money as traditional search ads.
The High-Stakes Infrastructure Race
The next 18 months could determine who wins in cloud computing for the next decade. All three major players—Google, Microsoft, and Amazon—are simultaneously expanding their capacity in what amounts to a high-stakes race.
No company can afford to slow down while competitors are speeding up, because once a business starts using one company's AI infrastructure and trains its models there, switching becomes very difficult and expensive.
Why Google's infrastructure advantage matters:
- Custom TPU chips designed specifically for AI workloads give Google performance advantages others can't easily match
- Global fiber network and data center footprint built over two decades creates distribution advantages
- Companies switching AI infrastructure face months of retraining models and rewriting code
- First-mover advantage in securing power capacity and data center locations in an increasingly constrained market
From Experiments to Production Scale
The timing also coincides with AI moving from experiments to real production use. The $155 billion backlog shows that companies are making billion-dollar commitments, not just running small pilot projects. Anthropic's multi-year deal with Google alone could bring in $9-10 billion annually.
These are real production systems at scale.
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