Google Cloud CEO Says Customers Are Spending 50% Above Commitments As AI Demand Outstrips Capacity

• Kurian said Google plans to rent capacity from external service providers for the next few quarters to meet surging demand for its cloud services.
• He said that this allows Google to onboard customers and transition them to its own infrastructure once additional capacity comes online, making the investment worthwhile over time.
• Kurian acknowledged that renting this capacity will hurt the company’s margins, but added that it will allow Google to capture the demand.

Google Cloud CEO Thomas Kurian on Thursday said that the company’s existing customers are spending 50% more than what they have already committed, crediting it to the differentiation in the product portfolio.

During an interview with CNBC, Kurian touted growth across seventeen different product lines of Alphabet Inc. (GOOG, GOOGL) over the past 12 months.

“Our existing customers have increased their spend when they make a commitment to us,” he said.

Despite the company’s better-than-expected Q2 results, Alphabet’s Class A shares fell nearly 7% in Thursday morning’s trade, hitting the lowest levels in more than three months. GOOGL was among the top trending tickers on Stocktwits at the time of writing.

GOOGL Looks To External Providers To Meet Cloud Demand

Google is looking to leverage capacity from external service providers to meet demand for its cloud services. Kurian shed more light on the company’s plans, saying that Google intends to rent this capacity for a few quarters.

“It allows us to bring customers in, bridge them over to when we have sufficient capacity available, and then that will compound over time, and the return on investment makes sense for us,” he said.

Kurian acknowledged that renting this capacity will hurt the company’s margins, but added that it will allow Google to capture the demand. He said that these customers then tend to spend more on other services offered by the company.

Google Cloud revenue during Q2 soared 82% year-on-year to $24.8 billion, far outpacing other businesses like Google Search and YouTube advertisements.

Kurian Defends GOOGL’s Capex Plans

Kurian downplayed concerns about Alphabet’s increased capex forecasts, saying that the company is “very, very disciplined” in this regard.

His comments come after the company stated that it expects an increase in capex during the current fiscal year, raising its forecast to $195 billion to $205 billion, up from the $180 billion to $190 billion that it forecast during the first quarter (Q1). Kurian touted real returns being generated by companies utilizing Google’s AI offerings.

“Macy’s, for example, has found [that] as they deployed our AI system, it’s improved the size of the shopping basket that they see. We’ve seen Macquarie Bank save a lot of processing time by automating many of the workflows in their organization,” he said.

Dan Ives Says AI Capex Narrative Continues ‘Full Steam Ahead’

Tech strategist Dan Ives said on Thursday following Alphabet and Tesla Inc.’s (TSLA) earnings that the AI capex narrative remains “full steam ahead.”

He said higher spending on AI infrastructure could pressure margins in the near term, but accelerating AI adoption across enterprises and consumers will remain a defining theme of Q2 earnings.

Ives added that while this may test investor patience, capex will drive the future.

What Retail Traders Think Of GOOGL Stock

Retail sentiment on Stocktwits around Alphabet trended in the ‘extremely bullish’ territory, with message volumes at ‘extremely high’ levels at the time of writing.

GOOGL stock is up 2% year-to-date and 68% over the past 12 months. The S&P 500 ETF (SPY) is up 16% over the past 12 months, while the Invesco QQQ Trust (QQQ) is up 23%.

Also See: Dow Falls Over 500 Points, Trump's Latest Iran Threat Sends Crude Oil Prices Over $100 A Barrel — Nasdaq Declines After TSLA, GOOGL Earnings

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