Nearly Every AI Unicorn Is Building on Google Cloud

Happy Friday! This week was full of earnings, data, and trade news. Most of it leaned constructive. Meme stocks had their moment in the sun, a sign of some euphoria showing up in pockets of the market. But more important was the lift in small and mid caps. As macro concerns start to fade, we’re seeing renewed interest in overlooked areas. Still plenty of opportunity out there.

This week we focused on Google’s earnings, given its central role in AI, cloud infrastructure, and consumer tech. The highlights were clear: Google Cloud is accelerating again with 32% growth and 20% margins, CapEx was raised to $85B on the back of AI demand, and nearly every AI unicorn is building on their platform. Waymo continues to expand with 100M+ autonomous miles, and core businesses like Search and YouTube are still growing double digits. A strong quarter across the board. Lets get into it…

Here is the summary if you want just that:

• Google Cloud revenue reached $13.6B in Q2, up 32% Y/Y

• Cloud operating income hit $2.8B, with margins expanding to 20.7%

• Waymo crossed 100 million autonomous miles and is scaling across new cities

So Google is critical to monitor because it spans multiple key sectors: AI, self-driving technology, content distribution through YouTube, and search activity, which serves as a decent barometer of economic health since their revenue comes from advertisers. We already had a good read that they would beat earnings but the details were less known…

Lets start with just their cloud business.

Q2 revenue came in at $13.6B, up 32% Y/Y. That’s the fastest growth rate in several quarters. The real story is profitability. Operating income hit $2.8B, with margins expanding from 11.3% a year ago to 20.7% now. This business is no longer just growing, it’s scaling profitably. A $100B run rate with 20%+ margins means real profit leverage is kicking in. Investors used to question whether this segment would ever work. Now a cash machine.

Management noted that nearly every AI unicorn uses Google Cloud. That backs up why they just raised their CapEx budget by $10B sequentially, now guiding to $85B for the year. Analysts were expecting closer to $73B. The AI race isn’t just about search. Google is becoming the infrastructure provider for many of the most important new companies. If AI workloads accelerate, Google benefits.

Here is just a view of the cloud growth just for context.

Now onto Waymo. They shared that they now have 100M+ autonomous miles driven. They’ve launched in Atlanta, doubled coverage in LA and Austin, and opened teen rider accounts in Phoenix. They’re expanding in Miami and prepping for Washington DC. So lots to like there. We think this could be a $50B revenue business at massive scale and highly profitable, the question is what, where, and how…

Lastly, the broader business remains solid. YouTube is growing 13% Y/Y. Google Search still grew 12%. The Gemini app has 450M monthly users. Subscription and devices revenue grew 20%. Overall, total revenue hit $82.5B this quarter.

Next week we get so many names, including some of our investments!

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