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Google Cloud grew 34% in the third quarter on AI demand

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Cloud is now challenging YouTube as Alphabet's No. 2 cash

generator

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Strategy shifts help Alphabet compete with Amazon ( AMZN ) and

Microsoft ( MSFT )

in cloud services

By Kenrick Cai

NEW YORK, NY, Oct 31 (Reuters) -

Once a money-losing backwater, Google Cloud has become one

of Alphabet's fastest-growing businesses, powered by

massive bets on AI and years of costly investment in

datacenters, custom chips, and networking gear.

Alphabet's cloud revenue topped

$15 billion in the third quarter

, a 34% increase reflecting strong demand for AI

infrastructure and services, including Google's own Gemini

model, the company announced Wednesday.

Google Cloud is now challenging YouTube as Alphabet's No. 2

cash generator behind its search ads business.

"Google Cloud is one of the most important priorities for

Alphabet as a whole and I expect it to play an even more central

role as the company moves forward," Alphabet CEO Sundar Pichai

told Reuters in an interview earlier in October.

Much of the cloud unit's growth can be attributed to the

business bets and diplomatic maneuvering of its head Thomas

Kurian, who joined Google from Oracle in 2018 and grew the

unit's market share from 7% then to 13% in 2025, according to

Synergy Research Group, which tracks the cloud industry.

When Pichai replaced Google co-founder Larry Page as CEO in

2019, he identified Google Cloud and YouTube as his two big bets

to move Alphabet beyond its core business of search

advertising.

Since then, YouTube has largely delivered, becoming the

world's largest video platform with 1 billion hours watched per

day.

By contrast, Google Cloud lost billions between 2018 and

2022 due to heavy investments in servers, datacenters and chips

until it turned its first profit in 2023.

Now, with generative AI, Alphabet sees a chance to close the

gap with rivals Microsoft ( MSFT ) and Amazon ( AMZN ), which

hold 20% and 30% market share respectively.

Making Google Cloud a contender has come at a cost: Alphabet

has already shocked Wall Street twice during quarterly earnings

this year by proclaiming higher-than-expected capital spending

due to the need to build more infrastructure to fulfill cloud

demand.

"This is the moment Google Cloud was waiting for," Dave

McCarthy, who directs coverage of the cloud industry for

research firm IDC. "A lot of the future growth at Alphabet is

being looked at through its potential."

In exclusive interviews with Reuters, senior Alphabet

executives mapped out the gameplan that transformed the also-ran

into a growth driver: a cultural shift to a more customer-driven

sales approach; changing how it worked with rivals; and a

renewed focus on delivering profits.

'GET OUT OF HERE, KID'

Back when Kurian joined Alphabet, Google Cloud struggled to

win enterprise customers, unlike the ads side of the business

which was dealing with the biggest companies in the world.

"We would go to the ads team asking, 'Hey, can you help us

out with this customer?' And they would basically be like, 'Get

out of here, kid,'" said Josh Gwyther, a startup founder who

worked at Google Cloud from 2016 to 2025.

That's not a problem anymore: Google's scope of AI offerings

have brought it into conversations with large companies that

previously only considered Amazon ( AMZN ) and Microsoft ( MSFT ).

"The ads business is extremely healthy, but it's not going

to grow at the pace that we are," said Matt Renner, Google

Cloud's president of global revenue.

Nine of the 10 leading AI labs are now customers, Kurian

said at an industry conference in September. They include

OpenAI, Anthropic and Safe Superintelligence. Details of

Google's deals with were

first reported by Reuters

earlier this year.

To get there, Kurian took a mallet to traditional practices,

replacing it with what several employees called an "un-Googley"

culture.

Kurian, who left a job as one of Larry Ellison's

highest-paid lieutenants at Oracle, brought financial

discipline to Google's "loosely-run, ground-up culture" that

encouraged side projects and experimentation, said Chirag Mehta,

a tech analyst who worked at Google Cloud from 2017 to 2021.

To slash costs, Kurian opened new offices in cheaper

locations, such as North Carolina and Poland. He audited Google

Cloud's contracts for internal services and renegotiated those

where he deemed his unit was being overcharged by other

departments, as was

first reported in The Information

.

He has ordered employees to focus on revenue rather than

bookings. Google Cloud also shifted its sales strategy to target

customers by sector rather than geography. That helped reduce

sales reps being assigned accounts in industries where they

lacked specialized knowledge, said Renner.

Its focus on generative AI has allowed it to catch up with

rivals Microsoft ( MSFT ) and Amazon ( AMZN ) from a technical standpoint,

according to some analysts.

"We believe that the three clouds competitively are on

roughly equal footing," said Goldman Sachs managing director

Eric Sheridan. "That's a very different competitive positioning

for Google Cloud now than two or three years ago."

WORKING WITH THE ENEMY

For years, Alphabet had reserved the lion's share of its own

chips, or TPUs, for in-house use only. That changed in 2022,

when Kurian successfully lobbied to move the group selling TPUs

from Google's core engineering unit into Google Cloud

That move drastically increased Google Cloud's allocation of

TPUs because the unit could now freely offer the chips rather

than having to receive approval from another part of the

company, according to two people familiar with the move.

A

t a time when the world was scrambling for compute, Alphabet

made the decision to make its chips available to not just its

own DeepMind AI unit, but also to its competitors.

That decision stoked tensions internally, according to

former employees of both units, but it gave Kurian a stronger

sales pitch for courting customers.

"We are the only hyperscaler with both silicon and models of

our own," he said. "How deep is your technical differentiation

when the same stuff that you're reselling can be bought from

somebody else?"

Google Cloud quickly leveraged the opportunity to petition

Anthropic to test TPUs as a viable alternative to Nvidia's ( NVDA )

GPUs, according to a former Google Cloud executive

involved in the partnership.

By 2024, Anthropic had seen enough to deploy Alphabet's TPUs at

scale. In October, it expanded its deal with Google to use as

many as one million TPUs, worth tens of billions of dollars. The

startup, which is now valued at $183 billion, has also tapped

Amazon ( AMZN ) for chips as it reduces its dependency on Nvidia ( NVDA ), which

controls about 80% of the AI chip market.

"The whole world was sort of on GPUs, OpenAI in particular,"

said Dan Rosenthal, who manages Anthropic's partnerships with

Google and Amazon ( AMZN ). The need for chips "pushed us to be more

flexible," he said.

Other AI developers including Apple ( AAPL ) and Safe

Superintelligence have since adopted Alphabet's TPUs. Pichai

told analysts on an earnings conference call this week that

Alphabet is "investing in TPU capacity to meet the tremendous

demand we are seeing from customers and partners."

And although Google Cloud launched an enterprise version of

its flagship model Gemini in October, Kurian told Reuters he

would welcome adding OpenAI's family of enterprise models to

Google Cloud if the ChatGPT maker was interested.

POWER SHIFT

The ascent of Google Cloud is shifting the balance of power

inside Alphabet. Current and former executives told Reuters

Kurian has gained clout at Google's weekly "leads," the

agenda-setting meetings where division leaders jostle over

resources and priorities.

"What Thomas has been a powerful voice for is making sure

that when we say we're focusing on the user, that we're focusing

on the enterprise customer too," Pichai said.

It still has a long way to catch up with its rivals and it

will be expensive to get there. In July, Pichai hiked Alphabet's

projected capital spending for 2025 by $10 billion to $85

billion. This week, he raised the projection again to between

$91 billion and $93 billion, adding that 2026 was likely to run

an even larger bill.

With concerns over an AI bubble growing, Pichai told Reuters

that he expects Google Cloud's business to have "a lot of

resilience" against short-term market corrections. "From our

standpoint, we've been doing the AI thing for a decade now, and

we're going to be doing it a decade from now."