Google Surges Ahead on GenAI Momentum and Resilient Capex Strategy Amid Macro Uncertainty

April 25, 2025 / Ben Bajarin

Key Takeaways on Google’s 1Q25 Earnings

Sustained AI Momentum Across Products and Infrastructure: Gemini 2.2 is now embedded across 15 products with 500M+ users, while AI Overviews in Search surpassed 1.5B MAUs. Visual and voice-first inputs like Google Lens and Circle to Search are driving deeper engagement and monetization parity with traditional search.
Robust Cloud and Capex Investment Despite Macro Overhangs: Google Cloud posted 28% YoY growth, in line with expectations but flagged as supply constrained. Capex was $17.2B in Q1 (+43% YoY), with full-year 2025 spending maintained at $75B to resolve AI infrastructure bottlenecks.
GenAI Enables Margin Efficiency: Despite a 31% rise in depreciation, opex grew just 9% YoY due to AI-driven productivity gains in coding, support, and finance. Google is leveraging GenAI not only to innovate but to suppress operational overhead.
AI Infrastructure Seen as a Long-Term Defensive Moat: Google’s capex strategy appears insulated from macro risks and tariffs, positioning AI infrastructure investments as a multiyear differentiator. Blackwell GPU and TPU v5+ deployments are pacing the broader GenAI push.
Positive Signal to Supply Chain and Ecosystem: Continued AI demand supports OEMs, ODMs, and component suppliers like Quanta, Wistron, and Unimicron. Google’s supply challenges are more about deployment cadence than demand, with ramping expected to improve in H2.

Analyst Summary of Google’s 1Q25 Earnings:

Alphabet’s first-quarter performance underscored its growing dominance in AI and its disciplined execution despite macroeconomic noise. Revenue came in above expectations at $90.2B (+12% YoY), with Google Cloud sustaining a strong +28% YoY pace despite acknowledged supply constraints. The company’s ability to maintain robust topline growth while reining in opex (+9% YoY) reflects improving operational leverage fueled by GenAI deployment internally.

Capex surged 43% YoY to $17.2B, and full-year guidance remains unchanged at $75B, signaling that Google sees no near-term slowdown in infrastructure demand. Rather than tightening spending in response to market uncertainty, Google is accelerating AI investments, particularly in server and network buildouts required to support products like Gemini, AI Overviews, Circle to Search, and Lens—which now powers over 5 billion visual searches.

Crucially, Google’s AI initiatives are generating measurable productivity gains. Over 30% of code is now AI-suggested, and similar efficiencies are emerging in support and finance operations. This has helped absorb increased depreciation without pressuring margins.

While the broader ad market faces risks in 2H25 from consumer pullbacks or tariff spillovers, Google remains a relative outperformer. Its real-time ad platform, paired with high-intent commercial queries (now increasingly shaped by AI), provides both defensiveness and optionality.

The investment case is further bolstered by Google’s infrastructure-led moat. Analysts anticipate sequential improvements in supply deployment and continued ecosystem momentum. Valuation remains compelling at ~18.5x 2026E EPS with a potential upside to $230/share in a bullish GenAI monetization scenario.

View From the Street

Investor Sentiment: Cautiously Optimistic but Macro-Aware

Investors appear largely confident in Google’s AI and Search innovation, impressed by Gemini’s integration across core products and YouTube’s resilience. However, sentiment is tempered by caution, especially regarding:

Potential macroeconomic headwinds in 2H25, such as tariffs and advertising pullbacks.
The ramp-up in infrastructure spending and concerns about how long Google can maintain margin expansion amid rising depreciation.
Competitive pressures in consumer AI (e.g., Gemini DAUs vs. ChatGPT) and how Google can accelerate adoption.

Overall, the tone was curious but supportive, with analysts probing the durability of growth levers and cost flexibility in a potentially weakening macro environment.

Key Strategic Questions and Concerns Raised by Analysts

1. Macro Advertising Trends and Q2 Visibility

Question (Barclays, JPM, Bernstein): How are different ad verticals and regions trending into Q2? Are macro jitters affecting brand or DR spend?
Management Response: Philipp Schindler emphasized strong Q1 ad performance across verticals like finance, healthcare, and travel. He acknowledged the macro uncertainty (especially APAC de minimis policy changes) but stressed Google’s historical resilience and advertiser tools to manage volatility.

2. Monetization of AI Overviews

Question (JPMorgan): Are AI Overview ads monetizing as well as traditional search? What’s the click-through performance?
Response: Schindler confirmed that AI Overviews are monetizing “at approximately the same rate” as standard Search, though he declined to disclose CTR or conversion metrics. He framed the results as encouraging and a base for future innovation.

3. Cost Flexibility and Margin Leverage

Question (Evercore, Goldman Sachs): Can you continue offsetting rising depreciation? What’s flexible if the macro worsens?
Response: CFO Anat Ashkenazi reiterated confidence in Google’s operating leverage, citing GenAI-powered efficiencies, disciplined compensation growth, and infrastructure utilization reviews. However, she cautioned that depreciation will continue to rise throughout 2025.

4. DAU Gap in Consumer AI (Gemini vs. ChatGPT)

Question (Barclays): With Gemini’s 35M DAUs trailing ChatGPT, what’s the plan to scale usage?
Response: CEO Sundar Pichai pointed to positive momentum across AI Mode, Gemini App, and Search integration. He emphasized strong developer and enterprise feedback, with longer, more complex queries reflecting deeper engagement.

5. YouTube Monetization Health

Question (Citi, Barclays): Is brand and DR demand holding up on YouTube?
Response: Schindler noted solid growth in both brand and direct response, crediting cultural moments (e.g., March Madness), Shorts monetization progress, and tools like PMax. Sundar highlighted platform scale with 20B total videos and 20M daily uploads.

6. CapEx Prioritization Amid Macro Risk

Question (Goldman Sachs): If the macro deteriorates, how fixed is the $75B CapEx budget?
Response: Ashkenazi stated that while CapEx remains a long-term investment priority across Search, Cloud, and DeepMind, Google continuously evaluates infrastructure efficiency and allocation rigorously, even under macro pressure.

7. Internal AI Adoption

Question (Bernstein): How is GenAI transforming Google’s internal workflows?
Response: Pichai detailed a strong uptake in coding, support, and finance, with 30%+ of code now AI-suggested. He teased deeper agentic flows under development and reiterated the ambition to build an “AI-first Google.”

8. Search Interface Strategy: AI Mode vs. Gemini vs. Overviews

Question (Wells Fargo): Will you eventually unify these or keep them distinct?
Response: Pichai explained that the experiences are complementary, serving different user cohorts and use cases. He implied a tiered strategy—AI Mode for power users, Overviews for broad usage, and Gemini App for productivity/AIAgent workflows.

Analysts pressed Google leadership on the sustainability of AI monetization, cost discipline under macro pressure, and product adoption metrics in the face of fierce competition. Management maintained a reassuring tone, reinforcing their long-term investment in infrastructure and AI while outlining near-term measures to preserve margins and momentum.

The overarching message: AI is driving both top-line growth and operational efficiency, and Google believes it is better positioned than ever to scale these benefits—even amid macro uncertainty.

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