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The RegisterAnd is also buying more third-party compute capacity to handle demand for the G-Cloud Google’s parent company Alphabet is managing its fleet of AI accelerators to prioritize research on artificial general intelligence, rather than renting them all to customers. CEO Sundar Pichai revealed the company’s priorities during its second quarter earnings call, during which the company confirmed it has delivered on its plan to sell its tensor processing units (TPUs) to some customers. In response to news of those sales, Goldman Sachs analyst Eric Sheridan asked how Alphabet balances demand from customers who want to buy its TPUs and the web giant’s own need for processing power. “In terms of allocating our TPUs … our first priority is making sure we are allocating what we need to compete at the frontier in terms of
AGIdevelopment,” Pichai replied, referring to Artificial General Intelligence –AIs that possesses human-like intelligence. “That is the foundation for everything we do,” Pichai added. Another analyst, Mark Shmulik of Bernstein, revisited the matter by asking how Google allocates processing capacity among its search business, cloud operation, and modeltrainingefforts. “On allocation, I think the baseline with which we start is what it takes to continue AGI development at the frontier,” Pichai responded. The CEO said Alphabet is also “prioritizing our core product areas like Search, YouTube, et cetera, as well as Cloud.” And in the G-Cloud, Google is “prioritizing thecomputeto make sure we can serve our models in the context of Vertex andGeminiEnterprise, and our core solutions, be it data analytics and cybersecurity.” “Our core services for our core products across consumers and enterprises is where the compute is primarily going, and that’s how we think about it,” the CEO added. Google’s core services are going gangbusters. Google Cloud revenue leapt 82 percent year over year, to $24.75 billion for the quarter, and delivered an $8.8 billion profit which represented 214 percent growth. The Big G said that growth came from “strong demand for AI infrastructure and AI solutions.” There’s probably more to come as the G-Cloud now has $514 billion of cloudy backlog on the books, meaning customers have signed up for services they’re yet to consume. Search revenue grew 17 percent and YouTube ads grew 13 percent. Whengenerative AIcame along some pundits suggested it could threaten Google’s search ads biz. That was not a good take because Pichai said the company’s AI Mode for search is “driving an incremental increase in Search queries overall.” AI search needs specialist hardware that is expensive to buy and run. Pichai said Google is on top of that. “Thanks to our engineering and hardware optimizations, this quarter we reduced the cost of AI Mode responses to its lowest level since launch, even as we’ve brought more advanced AI capabilities.” Google continues to spend megabucks on AI infrastructure – CFO Anat Ashkenazi said the company now plans to spend between $195 billion and $205 billion this financial year, up from a previous estimate of $180 billion to 190 billion. Ashkenazi said Google can’t get all the kit it needs due to what she described as “the supply-constrained environment.” Google therefore plans to “expand the use of third-party capacity in Q3 as a bridging strategy while we build out more internal capacity.” Pichai said buying bridging capacity will help Google to land monster cloud clients. “There are very, very large customers of ours on Cloud who we are trying to support them through this extraordinary moment,” the CEO said. “The incremental opportunities they are bringing to us, while a short-term cost over a few months may be very high, in the lifetime of the deal, as we bring more capacity on, is highly ROI positive.” “Those are factors we are taking into account. Are you willing to take upfront six-month deal to be able to serve that customer in what is a multi-year opportunity, where the margins and the returns are very, very attractive over that multi-year horizon?” Alphabet’s quarterly revenue landed at $119.8 billion, up 24 percent year over year. Operating income hit $40.8 billion, up 34 percent. Yet even those torrents of money couldn’t stop Google’s free cash flow landing at -$5.9 billion – the first time the company hasn’t had spare cash to splash since 2004. Investors seem not to like that and sent the price of the company’s shares down by four percent in after hours trading. ®Get AI news in your inbox
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Key Terms Explained #
AGI
Artificial General Intelligence.
Compute
The processing power needed to train and run AI models.
Gemini
Google's flagship multimodal AI model family, developed by Google DeepMind.
Generative AI
AI systems that create new content — text, images, audio, video, or code — rather than just analyzing or classifying existing data.