Customers Spend 50% More! Google Cloud Proves AI Has Buyers, But Computing Power and Costs Remain Challenges

Thomas Kurian, CEO of Google Cloud, stated that existing customers are spending approximately 50% more than their initial commitment amounts. This strong demand is fueling rapid growth in Google's cloud business during the second quarter, but it has also forced the company to rent additional computing capacity from third-party providers due to insufficient in-house resources.

Kurian said in a CNBC interview on Thursday (23rd) that after signing spending commitments with Google (GOOGL-US), existing customers typically spend about 50% more than the agreed amount. This reflects the differentiation of Google's product portfolio and its sales and market execution capabilities, with these results clearly reflected in revenue and operating profit growth.

Google's parent company, Alphabet, released its second-quarter financial results on Wednesday. Overall revenue exceeded market expectations, with Google Cloud revenue increasing 82% year-over-year, making it the standout performer. Demand for cloud services has already surpassed Google's current computing capacity, prompting the company to plan to rent additional capacity from third-party AI cloud providers. This news boosted the stock prices of CoreWeave (CRWV-US) and Nebius (NBIS-US).

Kurian acknowledged that renting computing resources from external providers will temporarily reduce Google Cloud's profit margins, but the company expects this to last only for several quarters. The strategy is to secure customers first, then migrate them to internal infrastructure once Google's own data centers and computing capacity are fully operational.

He emphasized that these customers typically purchase other Google services as well, leading to compounded growth over time. Therefore, the return on investment for these expenditures remains reasonable.

However, investors remain uneasy about Alphabet's continuously expanding artificial intelligence (AI) spending, causing the company's stock to plummet over 7% on Thursday. Alphabet has raised its capital expenditure forecast for the year from the previous $180 billion to $190 billion to $195 billion to $205 billion. Second-quarter capital expenditures already reached $44.9 billion, with most of it invested in AI infrastructure.

Before Alphabet announced its earnings, the market had estimated that major U.S. tech companies would invest around $725 billion in AI development this year. With Amazon (AMZN-US), Microsoft (MSFT-US), and Meta (META-US) set to release their earnings reports next week, this figure could rise further.

Kurian defended the company's capital expenditure strategy, stating that Google is making investments in a "very, very disciplined" manner. He noted that enterprise customers are already achieving tangible returns from AI applications. For example, Macy's (M-US) saw increased customer spending after implementing Google's AI system, and Macquarie Bank significantly reduced processing times by automating internal workflows.