Alphabet (GOOGL +0.97%) (GOOG +0.87%) CEO Sundar Pichai recently revealed some notable artificial intelligence metrics for his company, including an impressive 950 million monthly Gemini app users and, most importantly, $24.8 billion in Google Cloud revenue in the second quarter -- an 82% increase from the year-ago period.
Google Cloud's revenue acceleration was far ahead of the company's search revenue growth, which increased by just 17% in Q2.
While search brings in more sales, it's clear that Google Cloud will be a primary growth driver as Alphabet builds its future on artificial intelligence. Here's why.
Alphabet CEO Sundar Pichai. Image source: Alphabet.
Why Google Cloud is so important to Alphabet
Search has long been the foundation of Alphabet, and it's still very important to the company. While revenue from the company's "Google search and other" segment rose just 17% in the second quarter, that was still $63.3 billion in revenue -- accounting for more than half of Alphabet's top line.
In contrast, Google Cloud accounted for just over one-fifth of total sales.
But Google Cloud's impressive growth rate is a good indicator of where Alphabet is headed. Google Cloud makes most of its money from leasing cloud computing capacity to companies and consumers, selling Google Gemini Enterprise subscriptions, and other AI-related services.
Pichai said on the second-quarter earnings call that Google Cloud has a $514 billion revenue backlog. And 90% of Fortune 100 companies are already using the company's Gemini Enterprise tools.
All of this matters because the cloud market is expected to be worth $2 trillion by 2030.
This huge market is emerging as Alphabet, Microsoft, and others expand their AI cloud services amid the expansion of AI agents. Microsoft, for its part, saw its Azure cloud revenue jump 43% in its fiscal fourth quarter, which ended June 30. And Azure now has an annualized revenue run rate of $100 billion.
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Key Data Points
Google Cloud is expanding, while search is shifting
Online searches aren't going away anytime soon, and Alphabet is benefiting from its decision to start offering users AI Overviews and Gemini-powered answers that make its search results more detailed than before.
But search is certainly undergoing a shift. With the recent launches of Meta Muse and OpenAI Dots, more people have access to AI agents that can autonomously complete multistep tasks on their behalf. In many cases, typing questions into a search bar to get answers isn't the best way to get things done anymore.
The good news for Alphabet is that it can continue to benefit from adapting search for the AI world while simultaneously benefiting from the growth of its cloud business. With search still accounting for most of its sales, and Google Cloud being its fastest-growing revenue segment, Alphabet is in a great position to benefit from both of these businesses.
