Google Cloud closes in on Azure as TPUs fuel growth, but Alphabet shares sink

Google Cloud revenue grew 103% year over year, Sundar Pichai said on X, and the company's in-house Tensor Processing Units are now a "meaningful contributor" to growth, according to Nikkei Asia's account of the results. Investors did not throw a parade: Alphabet shares fell sharply in extended trading.

That is the whole drama of the day. The chip story is glittering, the cloud story is glittering, and the stock chart is having a very different evening.

The chips are now a business

Nikkei Asia says demand for Google's in-house AI chips is rising amid the AI infrastructure buildout, and that the TPUs are challenging Nvidia's dominance. The headline number: nearly 100 TPU customers.

Designing its own silicon gives Google an interesting hand to play against Microsoft and Nvidia alike. The reporting we have does not break out TPU revenue, so the size of the contribution is described only as "meaningful."

Pichai put the demand in his own words on X: "Google Cloud revenue grew 103%, powered by extraordinary demand for our AI infrastructure and AI solutions." He also said Google's first-party model APIs now process nearly 32 billion tokens per minute, up 40% quarter over quarter. The model lineup includes Argon, Carbon and the world model Genie 4.

Closing in on Azure

The Information put the competitive story in a headline: "Google Cloud Closes In on Azure, but Microsoft Wins the Day With Investors." That is the angle, and it is a delicious one.

Here is what the material does not include: Azure's revenue or growth figures. Without them, "closing in" is The Information's framing, not a number we can check. A 103% growth rate is a spectacular thing to put on a slide. How much distance it covers depends on where Azure stands, and that figure is not in hand today.

The broader Alphabet picture is strong on usage. Pichai says the company is "now on a half-trillion annual revenue run rate, with Alphabet revenues growing at 25%." He added that overall Search query growth, including commercial queries, is at its highest year-over-year rate in five years.

The numbers Wall Street read instead

Then came the quarter itself. As we laid out in our earlier report on the Alphabet miss, revenue was $127.58 billion, short of the $128.22 billion analysts polled by LSEG expected, even with 25% year-over-year growth.

The rest of the scorecard:

• Earnings per share: $2.12 against an analyst estimate of $3.02, though CNBC noted it is not immediately clear whether the reported earnings are comparable to the LSEG estimate.
• Profit: The Information reported that operating profit rose, but net profit declined.
• Cash: CNBC reported free cash flow sinking further, with third-quarter capital expenditure expectations missed.
• Spending: The Financial Times linked what it called a $51 billion AI outlay to deeper cash burn.

The size of the share drop depends on who is counting. CNBC reported a 7% slump. The Financial Times reported a 9% tumble. Reuters, via Nikkei Asia, said shares plunged more than 9% in extended trading.

What it means and what to watch

The tension is old and now very large: the AI buildout is costing a fortune, and the market wants to see the fortune coming back. Alphabet's argument is that it is coming back, through a cloud business growing 103% and chips that nearly 100 customers want. The market's argument, at least for one evening, is that the cash flow line matters too.

There are open questions worth tracking. The period and projects behind the $51 billion outlay are not specified in the reporting. The dollar figures for free cash flow and capital expenditure are not given. The reason net profit fell while operating profit rose is not explained.

Watch three things next: whether TPU customer counts keep climbing, whether Google Cloud's growth holds up against its own huge new base, and whether Alphabet's spending starts to look like an investment to the people who price the stock. The chip race with Nvidia and the cloud race with Microsoft are now one race, and Google just showed up with a very loud engine and a very sore stock price.