Gemini 2.5 and AI Overviews Mark Google’s Biggest AI Push Yet

Google’s parent Alphabet reported higher-than-expected earnings and revenue for the first quarter, with its core search business up nearly 10% and Google Cloud racking up a 28% gain in sales.

In an earnings call with analysts, CEO Sundar Pichai highlighted the company’s artificial intelligence (AI) initiatives, particularly the success of Gemini 2.5, its most powerful large language model.

But the search giant also said it was not immune to the macroeconomic environment and noted it might face headwinds with the closing of the “de minimis” loophole by President Trump on May 2.

The de minimis rule had exempted imported goods worth at most $800 from duties. The new rule would assess duties on such imports based on their value and whether or not they used the postal network. Asian sellers especially might not advertise as much if they face duties on goods.

Alphabet’s first-quarter financials beat Wall Street’s consensus expectations. Shares are up 5.1% in after-hours trading. The stock closed up 2.5% during regular trading hours.

“This quarter was super exciting as we rolled out Gemini 2.5, our most intelligent AI model, which is achieving breakthroughs in performance and is widely recognized as the best model in the industry,” Pichai said.

The company has integrated AI across its product lines, with 15 Google products each having over half a billion users now using Gemini models.

AI Overviews in search have reached 1.5 billion monthly users, and the company recently launched AI Mode, an experimental feature that allows for more complex queries and advanced reasoning capabilities.

“We continue to see that usage growth is increasing as people learn that search is more useful for more of their queries,” Pichai said, noting that AI Mode queries are typically twice as long as those in traditional search.

Alphabet continues to make steep investments in infrastructure, with capital expenditures reaching $17.2 billion in Q1, primarily for technical infrastructure including servers and data centers. Alphabet plans to invest about $75 billion in capex for the full year 2025.

These investments are expected to put pressure on financials, particularly through increased depreciation. In Q1, depreciation grew 31% year over year, and the company expects this growth rate to accelerate throughout 2025.

Read more: Court to Begin Considering Remedies in Google Search Antitrust Trial

Waymo Plans; Mum on Antitrust

Pichai also highlighted progress at Waymo, Alphabet’s autonomous vehicle subsidiary, which is now serving over 250,000 paid passenger trips weekly — a fivefold increase from a year ago. The company expanded its service in Silicon Valley and launched in Austin, Texas, through a partnership with Uber. It is preparing to land in Atlanta and Miami, too.

One plan under consideration is sales of Waymo cars. “There is future optionality around personal ownership,” Pichai said on the call.

In the first quarter, Alphabet reported a 46% increase in net income to $34.5 billion, or $2.81 per share, compared to the like quarter a year ago. Revenue rose 12% to $90.2 billion, year over year.

Wall Street analysts expected Alphabet to earn $2.01 per share and revenue of $89.2 billion, according to FactSet.

Even though total costs rose in the quarter, higher revenues and $11.2 billion in other income, which includes $9.76 billion in gains from equity securities, buoyed the bottom line.

Google Search revenue rose by 10% to $50.7 billion, led by strength in financial services, particularly insurance, followed by retail. YouTube advertising revenues also grew 10% to $8.9 billion, driven mainly by direct response advertising.

Subscription services revenues increased 19% to $10.4 billion. YouTube subscription offerings and Google One were the primary drivers.

Google Cloud emerged as a standout performer, with revenue increasing 28% to $12.3 billion. Operating income in this segment reached $2.2 billion, with operating margins expanding from 9.4% to 17.8%.

However, Bank of America Global Research analysts think the second quarter may be more “muted.”

“With a negative tariff ad spend impact, along with growing competitors AI traffic and cautious 3P [third-party] search data, outlook uncertainty is elevated,” wrote BofA analyst Justin Post in a research note shared with PYMNTS.

While there could be spending pressures in eCommerce and for ads on YouTube, commentary by Amazon and Netflix on advertising “suggests some pockets of resilience, and we look for Google search ad spend to perform relatively well,” Post added.

Alphabet executives did not mention the antitrust lawsuits it is facing from the U.S. government, and only one analyst mentioned it on the call. Google lost the ad tech antitrust lawsuit in which a U.S. judge ruled that it illegally monopolized the online advertising market.

Google’s other antitrust lawsuit, accusing the company of anticompetitive behavior due to its search monopoly, went to trial this week.

 

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