Google Cloud was transformed by AI into Alphabet’s growth engine.

Thanks to years of expensive investments in datacenters, specialized CPUs, and networking equipment, as well as huge bets on artificial intelligence, Google Cloud—once a losing backwater—has emerged as one of Alphabet’s (GOOGL.O) fastest-growing companies.

Alphabet said Wednesday that its cloud revenue had surpassed $15 billion in the third quarter, a 34% increase that reflected the robust demand for AI services and infrastructure, including Google’s own Gemini model.

As Alphabet’s second-largest source of revenue from its search advertising business, Google Cloud is now posing a threat to YouTube.

In an interview with Reuters earlier in October, Alphabet CEO Sundar Pichai stated, “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.”

According to Synergy Research Group, which monitors the cloud industry, a large portion of the cloud unit’s growth may be ascribed to the commercial decisions and diplomatic scheming of its head, Thomas Kurian, who joined Google from Oracle in 2018 and increased the unit’s market share from 7% in 2018 to 13% in 2025.

In order to diversify Alphabet’s operations outside search advertising, Pichai named YouTube and Google Cloud as his two main bets when he took over as CEO in 2019 from Google co-founder Larry Page.

Since then, YouTube has mostly succeeded, growing to become the biggest video platform globally with one billion hours of daily viewing. In contrast, Google Cloud lost billions of dollars between 2018 and 2022 as a result of significant investments in semiconductors, servers, and datacenters before making its first profit in 2023.

Alphabet now sees an opportunity to catch up to competitors Microsoft (MSFT.O) and Amazon (AMZN.O), which now control a 20% and 30% market share, respectively, thanks to generative AI.

There is a price for making Google Cloud a contender: During quarterly earnings this year, Alphabet has already surprised Wall Street twice by announcing higher-than-expected capital spending because it has to expand its infrastructure to meet cloud demand.

Dave McCarthy, who oversees cloud market coverage for research firm IDC, said, “This is the moment Google Cloud was waiting for.” “A lot of Alphabet’s future expansion is being examined through its potential.”

Senior Alphabet officials laid out the strategy that turned the also-ran into a growth engine in exclusive interviews with Reuters. This strategy included a cultural change to a more customer-driven sales approach, adjustments to the company’s interactions with competitors, and a renewed emphasis on generating profits.

“Kid, get out of here.”

When Kurian joined Alphabet, Google Cloud was having trouble attracting enterprise clients, in contrast to the advertising division, which was working with the largest corporations globally.

“Hey, can you help us with this customer?'” is what we would say to the advertising staff. They would essentially say, “Get out of here, kid,” according to Josh Gwyther, a business entrepreneur who spent 2016–2025 at Google Cloud.

That is no longer an issue because Google’s range of AI products has allowed it to engage in discussions with major corporations that had previously only taken into account Microsoft and Amazon.

Matt Renner, head of worldwide sales at Google Cloud, stated, “The ad business is very healthy, but it won’t grow at the pace that we are.”

At a September industry conference, Kurian stated that nine out of the top ten AI laboratories are now clients. These consist of Safe Superintelligence, Anthropic, and OpenAI. Earlier this year, Reuters broke the story of Google’s agreements with two of those laboratories.

Kurian replaced traditional methods with what some employees referred to as a “un-Googley” culture in order to get there.

Chirag Mehta, a tech analyst who worked at Google Cloud from 2017 to 2021, said Kurian, who left a position as one of Larry Ellison’s highest-paid lieutenants at Oracle (ORCL.N), introduced financial discipline to Google’s “loosely-run, ground-up culture” that promoted side projects and experimentation.

In order to save expenses, Kurian established new offices in less expensive places like Poland and North Carolina. As initially reported in The Information, he renegotiated contracts with Google Cloud for internal services after auditing them and finding that other departments were overcharging his section.

He has instructed staff to prioritize earnings over reservations. Additionally, Google Cloud changed its sales approach to focus on industry-specific clients rather than geographic ones. According to Renner, this lessened the number of sales representatives given accounts in sectors in which they lacked specialist knowledge.

Some observers claim that by concentrating on generative AI, it has been able to catch up to competitors like Amazon and Microsoft in terms of technological proficiency.

Eric Sheridan, managing director at Goldman Sachs, stated, “We think the three clouds are on about equal footing in terms of competition.” “Google Cloud’s competitive positioning has changed significantly over the past two or three years.”

COLLABORATION WITH THE ENEMY

Alphabet had been keeping the majority of its own chips, or TPUs, for internal use exclusively for years. When Kurian successfully pushed to transfer the TPU sales team from Google’s core engineering organization to Google Cloud in 2022, that changed.

According to two people with knowledge of the decision, that action significantly expanded Google Cloud’s allotment of TPUs as the division could now freely provide the chips without needing permission from another department.

Alphabet decided to make its processors available to both its own DeepMind AI unit and its rivals during a period when the world was rushing for computing power.
Former staff members of both groups claim that this choice increased internal conflicts, but it also offered Kurian a more persuasive sales pitch when pursuing clients.

He declared, “We are the only hyperscaler with both silicon and our own models.” “How deep is your technical differentiation when you can buy the same items from someone else and resell them?”

According to a former Google Cloud official involved in the collaboration, Google Cloud seized the chance to ask Anthropic to test TPUs as a competitive substitute for Nvidia’s (NVDA.O) GPUs.

Anthropic saw enough to implement Alphabet’s TPUs on a large scale by 2024. It extended its agreement with Google in October to use up to one million TPUs, which is valued at tens of billions of dollars. As it lessens its reliance on Nvidia, which holds roughly 80% of the market for AI chips, the startup, which is currently valued at $183 billion, has also turned to Amazon for chips.

Dan Rosenthal, who oversees Anthropic’s collaborations with Google and Amazon, stated, “The entire world was sort of on GPUs, OpenAI in particular.” He claimed that the necessity for chips “pushed us to be more flexible.”

Since then, Alphabet’s TPUs have been adopted by other AI developers, such as Apple (AAPL.O) and Safe Superintelligence. In Google earnings conference call last week, Pichai informed analysts that Alphabet is “investing in TPU capacity to meet the tremendous demand we are seeing from customers and partners.”

Even though Google Cloud released an enterprise version of its flagship model, Gemini, in October, Kurian told Reuters that if the ChatGPT manufacturer was interested, he would welcome adding OpenAI’s corporate model family to Google Cloud.

SHIFT IN POWER

Alphabet’s power dynamics are changing as a result of Google Cloud’s rise. Kurian has gained influence in Google’s weekly “leads,” which are agenda-setting meetings where division chiefs compete for resources and goals, according to current and former executives who spoke to Reuters.

Thomas has been a strong advocate for “ensuring that we’re focusing on the enterprise customer as well when we say we’re focusing on the user,” Pichai stated.
It will be costly to catch up to its competitors, and it still has a long way to go. Pichai increased Alphabet’s anticipated capital expenditures for 2025 by $10 billion to $85 billion in July.

He increased the estimate once more this week to between $91 billion and $93 billion, noting that 2026 was probably going to see an even higher bill.

Pichai told Reuters that he expected Google Cloud’s business to have “a lot of resilience” against short-term market corrections, despite mounting concerns about an AI bubble. “From our perspective, we have been working on the AI project for ten years and will continue to do so in ten years.”