GOOGL: Higher CapEx, TPU Sales, and Healthy Demand Trends

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GOOGL: Higher CapEx, TPU Sales, and Healthy Demand Trends

July 22, 2026

All in, our thesis is intact. Google Cloud backlog continues to increase despite tougher comps (on a Q/Q basis) while

revenue accelerated to 80%+ Y/Y. While the CapEx raise along with OM pressure from 3P capacity bridge may put

pressure on NT margins we think the SpaceX deal is temporary and Google has shown the ability to monetize its CapEx

quite well given its $500B+ backlog. We reiterate our outperform rating.

Search Trends:

●Search and Other revenue grew +17% Y/Y with retail and finance driving the largest contributions.

●Search usage hit an all-time high during the World Cup this year while AI Mode MAUs surpassed 1B.

●AI mode is driving an incremental increase in search queries overall and Google is sending billions of clicks to

websites every week through AI Features in Search.

●GOOGL reduced the cost of AI mode responses to its lowest level since launch.

●Half a million advertisers already adopted AI Max and management noted advertisers who adopted their AI

powered campaigns see an average of 15% or more conversions.

●Over half of GOOGL's SMB customers globally use AI to create or optimize their creatives.

●Gemini's advanced reasoning drove a 20% improvement in showing highly relevant ads.

●Management noted retail drove contributions followed by finance, tech, media, and entertainment though all major

verticals contributed to growth.

YouTube Trends:

●YouTube revenue grew +13% Y/Y driven by growth in Direct Response as well as Brand with strength in Living

Room.

●YouTube subscription is growing faster than ads driven by YouTube Music and YouTube Premium.

●Management sees opportunities in direct response, particularly with demand gen and shorts. Management also