Google Cloud's "counterattack"

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Driven by the wave of artificial intelligence, Google Cloud is transforming from Alphabet's long-term loss-making division into one of its fastest-growing engines. This profound transition not only reshapes Alphabet’s internal power structure, but also signals that global cloud computing competition is entering a new phase.

According to Alphabet’s earnings report released Wednesday, its cloud business revenue in the third quarter increased 34% year-on-year, exceeding $15 billion. This robust growth is mainly attributed to surging market demand for artificial intelligence infrastructure and services, including demand for Google’s self-developed Gemini model. These results position it to challenge YouTube, and it is expected to become Alphabet’s second largest revenue source after search advertising.

However, this comeback comes with massive spending. This year, Alphabet has twice raised its capital expenditure estimates due to cloud infrastructure construction needs, now expecting to spend $91–$93 billion. This shows that, in order to gain a foothold in a market dominated by Amazon and Microsoft, Alphabet is willing to pay a steep price.

The key figure in this transformation is Thomas Kurian, who joined Google Cloud in 2018. According to Synergy Research Group data, under his leadership, Google Cloud’s market share increased from 7% to 13% by 2025, underpinned by a series of strategic, cultural, and operational changes.

Strategic Shift and “Non-Google” Culture

Before Kurian arrived, Google Cloud struggled to win enterprise customers. Former employee Josh Gwyther recalls that when the cloud team sought help from the advertising division, they were often told “Go away, kid.” Kurian’s arrival completely changed this. The former Oracle executive brought financial discipline and a customer-centric sales model to Google’s “loose, bottom-up culture,” which some employees described as a “non-Google” culture.

To cut costs, Kurian opened new offices in relatively low-rent locations such as North Carolina and Poland, and reviewed internal service contracts. Meanwhile, he instructed the sales team to shift focus from order volume to revenue, and to restructure sales strategy from geographic to industry segmentation to increase specialization. Google Cloud Global Revenue President Matt Renner remarked, “The advertising business is very healthy, but it won’t grow as fast as we do.”

This series of changes has achieved remarkable results. Eric Sheridan, Managing Director at Goldman Sachs, commented: “We believe the three major cloud services are now roughly evenly matched competitively. This is a stark contrast to Google Cloud’s competitive position two or three years ago.”

Open chips and working with “enemies”

One of the key weapons in this comeback is Google’s self-developed AI chip (TPU). In the past, TPUs were almost exclusively for internal use. In 2022, Kurian successfully persuaded the company to transfer the TPU sales team out of core engineering and into Google Cloud. According to two sources, this move greatly increased Google Cloud’s TPU allocation, giving it more negotiating power when wooing clients.

With this strategy, Google Cloud began offering its powerful computing resources to external companies, including competitors. Kurian said: “We are the only hyperscale data center operator with both self-developed chips and self-developed models.” Google Cloud proactively approached AI startup Anthropic, convincing it to test TPUs as an alternative to Nvidia GPUs.

This collaboration ultimately led to a blockbuster multi-billion dollar deal. In October 2024, Anthropic expanded its agreement with Google, agreeing to use up to one million TPUs. Dan Rosenthal, in charge of the partnership, said that the demand for chips “made us more flexible.” Beyond Anthropic, other AI developers, including Apple and Safe Superintelligence, have also adopted Alphabet’s TPUs.

An Expensive Catch-up

Google Cloud’s rise is changing Alphabet’s internal balance of power. According to Reuters, citing current and former executives, Kurian has gained greater influence at the company’s weekly “leadership meetings.” Alphabet CEO Sundar Pichai also stated: “Thomas (Kurian) has always been vocal, ensuring our focus on enterprise clients.”

But the path of catching up is costly. After years of losses from 2018 to 2022, Google Cloud only turned profitable for the first time in 2023. To meet the massive AI-driven computing demand, Alphabet is making unprecedented capital investments. After Pichai raised the company’s 2025 capex forecast by $10 billion to $85 billion in July, this week he increased it again to $91–$93 billion and suggested that spending for 2026 could be even higher.

Faced with market concerns about an AI bubble, Pichai told Reuters that he expects Google Cloud will have “strong resilience” to withstand short-term market adjustments. He emphasized: “From our perspective, we have been working in AI for ten years, and in the next ten years we will continue this work.”

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