Google Sacrifices Cloud Revenue to Prioritize AI Race, CEO Admits – Alphabet (NASDAQ:GOOGL)

Alphabet Inc. (NASDAQ: GOOGL) CEO Sundar Pichai claims Google is abandoning potential cloud revenue to prioritize AI research, even as customers struggle to secure their computing capacity.

Google Cloud’s revenue jumped 82% to $24.8 billion in the second quarter, while its contracted backlog reached nearly $514 billion.

“Our cloud business is losing revenue all the time in the short term because we are making compromises in compute to support the development of cutting-edge AI,” Pichai told Alex Kantrowitz on the Big Technology Podcast Tuesday.

AI researchers take top spot in computing power

Pichai said to ensure Google DeepMind having sufficient computing capacity to develop cutting-edge AI models is “non-negotiable”, with other business activities planning around this commitment.

He argued that the most advanced AI models could help develop their successors, making research a strategic priority even when commercial demand is booming.

This request already extends to next year.

Pichai said responding to new customers requesting IT capacity in 2027 would be “incredibly difficult to do”.

“Everyone wishes you had twice as much as you expected,” he said, describing shortages in the industry.

SpaceX takes advantage of the computing crisis

This shortage helps fuel extraordinary growth EspaceX (NASDAQ: SPCX), which reported quarterly revenue of $14.6 billion on Tuesday, beating Wall Street expectations.

Its Super Intelligence division generated $7.6 billion, up 830% year-over-year, driven in part by customers leasing computing power.

CFO of SpaceX Bret Johnsen said on Tuesday’s conference call that the new IT infrastructure would pay for itself in less than a year at current prices.

Google itself agreed to pay SpaceX $920 million per month for its computing capacity starting in October.

Even $205 billion can’t quickly end the shortage

Alphabet plans to spend between $195 billion and $205 billion in capital expenditures this year, with much of that due to expanding its AI infrastructure.

“The calculation we have today is a function of the decisions I made in 2024,” Pichai said, noting the years it will take to build new data centers.

Pichai revealed that Gemini 4 Argon processed nearly 25 trillion tokens in its first 72 hours, approximately three times the initial usage of Gemini 3. Google is already limited in capacity to serve the new model.

Google’s quest for AI leadership is also playing out on Polymarket, where traders give the company about an 82% chance of having the top-ranked AI model at the end of October, compared to Google’s 17%. Anthropic.

The market has attracted over $3 million in trading volume and is resolved using Arena text model ranking.

As Alphabet reports earnings on October 28, investors will evaluate the returns on its growing AI spending.

Pichai did not disclose how much cloud revenue Google is forgoing, leaving the financial cost of prioritizing AI research unclear.

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