Thank you. Good afternoon, everyone, and welcome to Alphabet's Second Quarter 2025 Earnings Conference Call. With us today are Sundar Pichai, Philipp Schindler, and Anat Ashkenazi. Now I'll quickly cover the safe harbor. Some of the statements that we make today regarding our business, operations and financial performance may be considered forward-looking. Such statements are based on current expectations and assumptions that are subject to a number of risks and uncertainties. Actual results could differ materially. Please refer to our Forms 10-K and 10-Q, including the risk factors. We undertake no obligation to update any forward-looking statement. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures is included in today's earnings press release, which is distributed and available to the public through our Investor Relations website located at abc.xyz/investor. Our comments will be on year-over-year comparisons unless we state otherwise. And now I'll turn the call over to Sundar.

Thanks, Jim. Good afternoon, everyone. Q2 was a standout quarter for us with robust growth across the company. As you saw at IO, we are leading at the frontier of AI and shipping at an incredible pace. AI is positively impacting every part of the business, driving strong momentum. This quarter, Search delivered double-digit revenue growth. Our new Search features continue to perform well. AI Mode has launched in the U.S. and India and is going well, while AI Overviews now has over 2 billion monthly users across more than 200 countries and territories and 40 languages. I'll give some more details on Search in a moment. We continue to see strong performance in YouTube as well as subscriptions, reflecting great momentum across these high-growth businesses. In the U.S., shorts now earn as much revenue per watch hour as traditional in-stream on YouTube. And in some countries, it now even exceeds in-stream's rate. Cloud had another great quarter of strong growth in revenues, backlog and profitability. Its annual revenue run rate is now more than $50 billion. We are seeing significant demand for our comprehensive AI product portfolio. Of course, this is all possible because of the long-term investments we have made in our differentiated full stack approach to AI. This spans AI infrastructure, world-class research, models and tooling and our products and platforms that bring AI to people all over the world. I'll briefly touch on the AI stack before turning to quarterly highlights. First, AI infrastructure. We operate the leading global network of AI-optimized data centers and cloud regions. We also offer the industry's widest range of TPUs and GPUs along with storage and software built on top. That's why nearly all GenAI unicorns use Google Cloud. And that's why a growing number, including leading AI research labs like Safe Superintelligence and Physical Intelligence use TPU specifically. Our AI infrastructure investments are crucial to meeting the growth in demand from cloud customers. Next, world-class AI research, including models and tooling. We continue to expand our Gemini 2.5 family of hybrid reasoning models, which provide industry-leading performance in nearly every major benchmark. In addition to improving our popular workhorse model Flash, we debuted an extremely fast flashlight version. We achieved gold medal level performance in the International Math Olympiad using an advanced version of Gemini with Deepting. We can't wait to bring Deepting to users soon. We have some of the best models available today at every price point. Our 2.5 models have been a catalyst for growth and 9 million developers have now built with Gemini. I also want to mention Veo 3, our state-of-the-art video generation model. It's been a viral hit with people sharing clips created in the Gemini app and with our new AI filmmaking tool Flow. Since May, over 70 million videos have been generated using Veo 3. And we recently introduced a feature in the Gemini app to turn photos into videos, which people absolutely love. It's also rolling out to Google Photos users starting today. Third, our products and platforms. We are bringing AI to all our users and partners through surfaces like Workspace, Chrome, and more. The growth in usage has been incredible. At IO in May, we announced that we processed 480 trillion monthly tokens across our surfaces. Since then, we have doubled that number, now processing over 980 trillion monthly tokens, a remarkable increase. The Gemini app now has more than 450 million monthly active users, and we continue to see strong growth in engagement with daily requests growing over 50% from Q1. In June alone, over 50 million people used AI-powered meeting notes in Google Meet. And powered by Veo 3, our new short video product in Workspace called Google Vids reached nearly 1 million monthly active users. This month at Samsung Galaxy Unpacked, we announced new Android and AI features that are available on Samsung's latest devices. And we are really pleased with the growth in subscriptions, which got a boost from our Google AI Pro and Ultra plans. Now some key highlights from Search, Cloud, YouTube and Waymo for the quarter. First up, this is an incredibly exciting moment for Search. We see AI powering an expansion in how people are searching for and accessing information, unlocking completely new kinds of questions you can ask Google. Overall queries and commercial queries on Search continue to grow year-over-year. And our new AI experiences significantly contributed to this increase in usage. We are also seeing that our AI features cause users to search more as they learn that search can meet more of their needs. That's especially true for younger users. Let me go deeper on our new search experiences. We know how popular AI Overviews are because they are now driving over 10% more queries globally for the types of queries that show them, and this growth continues to increase over time. AI Overviews are now powered by Gemini 2.5, delivering the fastest AI responses in the industry. We also saw strong growth in the use of multimodal search, particularly the combination of lens or Circle to Search together with AI overviews. This growth was most pronounced among younger users. Our new end-to-end AI search experience, AI Mode continues to receive very positive feedback, particularly for longer and more complex questions. It's still rolling out, but already has over 100 million monthly active users in the U.S. and India. We plan to keep enhancing the AI Mode experience for users by shipping great features fast. That includes our advanced research tool Deep Search and more personalized responses. Next, Google Cloud. We see strong customer demand, driven by our product differentiation and our comprehensive AI product portfolio. Four stats show this. One, the number of deals over $250 million, doubling year-over-year; two, in the first half of 2025, we signed the same number of deals over $1 billion that we did in all of 2024. Three, the number of new GCP customers increased by nearly 28% quarter-over-quarter; four, more than 85,000 enterprises, including LVMH, Salesforce and Singapore's DBS Bank now build with Gemini, driving a 35x growth in Gemini usage year-over-year. Our models have served on our AI infrastructure, which offers industry-leading performance and cost efficiency for both training and inference. Along with our AI accelerators, we introduced new innovations in storage, including Anywhere Cache, which improves inference latency by up to 70% and rapid storage, which delivers a 5x improvement in latency compared to leading hyperscalers. In addition, we have optimized AI software packages, including PyTorch and JAX with full open source supports for various AI training and serving demands. We've also integrated AI agents deeply into each of our cloud products. Wayfair is leveraging our databases integrated with AI to streamline data pipelines and deliver more personalized customer experiences. Vantel is leveraging our Gemini-powered data agents and BigQuery to review and act on product feedback more quickly. Target is using our Gemini-powered threat intelligence and security operations agents to improve cybersecurity. Capgemini is utilizing our AI software engineering agents to deliver higher-quality software faster by automating tasks from code generation to testing. And BBVA says Gemini and Google Workspace is saving employees nearly 3 hours per week by automating repetitive tasks. It's now rolling it out to 100,000 employees globally. We are also focused on building a flourishing AI agent ecosystem. We introduced an open-source agent development kit, which now has over 1 million downloads in less than 4 months. We also introduced Agentspace, an open and interoperable enterprise chat search and agent platform. Gordon Food Service is bringing Agentspace to its U.S. employees, which is enabling better, more efficient decision-making. And over 1 million subscriptions have been booked for Agentspace ahead of its general availability. Turning now to YouTube. Nielsen data shows YouTube has led U.S. streaming watch time for over 2 years. A generation that grew up with YouTube on their devices is now increasingly watching their favorite creators and content on their televisions. That includes billions of sports fans, too. Globally, they consume more than 40 billion hours of sports content on YouTube annually. And in September, we'll stream the NFL's first Friday game of the season, live from Brazil. From sports to shorts, we now average over 200 billion daily views on YouTube Shorts. AI is helping improve our recommendations and auto dubbing, which translates to better returns for creators and brands by dramatically increasing the potential audiences they can reach. And today, we began rolling out a whole draft of new AI tools for creators on YouTube Shorts. Finally, YouTube continues to diversify its subscription options, recently expanding its premium light offerings to 15 new countries with more to come. And lastly, Waymo continues to scale and expand to safely serve more riders in more places. Last month, Waymo launched in Atlanta, more than doubled its Austin service territory and expanded its Los Angeles and San Francisco Bay Area territories by approximately 50%. Waymo also launched teen accounts, starting with riders aged 14 to 17 in Phoenix. Overall, great momentum here. The Waymo driver has now autonomously driven over 100 million miles on public roads. And the team is testing across more than 10 cities this year, including New York and Philadelphia. We hope to serve riders in all 10 in the future. As I said, a standout quarter. A big thank you, as always, to our employees and partners for an amazing Q2. Philipp, over to you.

Thanks, Sundar, and hello, everyone. I'll quickly cover performance for Google Services for the quarter, then structure the rest of my remarks around the great progress we're delivering across search, ads, YouTube and partnerships. Google Services revenues were $83 billion for the quarter, up 12% year-on-year, driven by strong growth in Search and YouTube, partially offset by year-on-year decline in network revenues. To add some further color to our results. The 12% increase in Search and other revenues was led by growth across all verticals with the largest contributions from retail and financial services. YouTube saw similar performance across verticals. Its 13% growth in advertising revenues was driven by direct response followed by brand. Starting with search and other revenues, which delivered over $54 billion in revenue for the quarter. Shifts like AI are what propels our industry forward. Gemini's native multimodality is helping bring the offline audio and visual world back into the online world, creating a number of opportunities for Search. Let me share a few examples. Take visual queries. Google Lens search is one of the fastest-growing query types on Search and grew 70% since this time last year. Majority of lens searches are incremental, and we're seeing healthy growth for shopping queries using lens. And you can obviously take this to the next level by moving from image to video-based capabilities like Search Live. And then there's Circle to Search, which is now in over 300 million Android devices. We've been adding capabilities to help people explore complex topics and ask follow-up questions without switching apps. For example, gamers can now use Circle to Search while playing mobile games to see an AI overview or answers. And just last week, we brought in new agentic capability directly into search for all U.S. users with AI-powered calling to local businesses. Finally, shopping, where in Q2, we introduced a virtual trial experience for search labs users in the U.S. Now people can try billions of clothing products on themselves virtually. Early results and engagement have been extremely positive, particularly with Gen Z users, and we'll be bringing this functionality to all U.S. users imminently. All these innovations are opening up completely new ways for people to use technology, bringing the offline world into the online world in ways that simply have not been possible before. Add in our amazing AI translation capabilities and just imagine the possibilities. People can access more content in the language and businesses, large and small, international or local, can reach even more customers. I'm excited about how all of these elements will come together and the opportunities ahead of us in Search. Moving to ads where our strategy to reinvent the entire marketing process with AI is delivering value for our customers and our business. Last quarter, we introduced AI Max and Search, a new suite of AI-powered features in existing search campaigns. Advertisers that activate AI Max and Search campaigns typically see 14% more conversions. On media buying, Smart Bidding Exploration, the biggest update to bidding strategy in a decade brings better performance to advertisers by allowing them to bid on a less obvious but potentially higher value queries more often. Campaigns using Smart Bidding Exploration see a 19% increase in conversions on average. Demand gen continues to drive revenue growth and deliver measurable impact for our customers. As an example, Depop, Etsy's resale clothing marketplace used a short-only demand gen campaign to drive new customers to the site. Short drove 80% buyer brand load and double click-through rates versus benchmarks. On creatives, we launched Asset Studio using our latest models to help businesses, large and small, generate creative assets. Small businesses benefit from top quality assets and deployment scaling capabilities, but larger businesses can go faster from proof of concept to launch and resize at lower cost. Over 2 million advertisers now use Google's AI-powered asset generation tools to run ads, a 50% increase from this time last year. Turning to YouTube, where we saw continued strong revenue growth driven by direct response followed by brand. YouTube creators are connected to the global site guides and trusted by their audiences like no others. As part of Brand Connect, we launched Creator partnership hub, which allows brands to more easily work with the right creators and tap into cultural moments. We introduced Veo 3, photo to video and generative effects to shorts, making content creation easier and offering unexplored avenues for creativity. We're seeing both the volume and the price of ads and shorts increase, particularly in developed markets. The feed-based nature of the product allows for more ad opportunities on average, and this growth is further supported by ad formats native to shorts, AI-powered ad creative resizing tools, improved ad targeting, and the rise in viewer engagement. McDonald's U.S.A. harnessed the influence of YouTube creators to ignite awareness for the Minecraft movie meal. It leveraged YouTube Shorts partnership ads to increase its reach, generating a 3.3x higher view-through rate than the industry benchmark. Finally, on CTV where the momentum continues. According to the gauge report by Nielsen, YouTube has been #1 in streaming watch time in the U.S. for more than 2 years, hitting a record high of 12.8% of total TV viewing in June 2025. In the past 12 months, YouTube ads viewed on CTV screens drove over 1 billion conversions. We saw strong growth in retail thanks to CTV shopping ads, which allows viewers to shop directly via QR codes, helping us leverage direct marketing opportunities. As always, I'll wrap up with the momentum we're seeing in partnerships, where our customers increasingly recognize the strength and breadth of Google's ability to help them transform their business with AI. For instance, a new partnership with PayPal will improve the digital commerce experience for their merchants and customers. PayPal will expand its Google Cloud adoption for AI-driven recommendations, transaction processing, and enhanced security. The partnership also broadens the availability and functionality of PayPal's payment services and capabilities across a range of Google products. In closing, I'd like to thank Googlers everywhere for their contributions and commitment to our success and to our customers and partners for their continued trust. Anat, over to you.

Thank you, Philipp. My comments will focus on year-over-year comparisons for the second quarter unless I state otherwise. I will start with the results at the Alphabet level and will then cover our segment results. I'll end with some commentary on our outlook for the second half of 2025. We had another solid quarter in Q2. Consolidated revenue of $96.4 billion increased by 14% or 13% in constant currency. Search and YouTube advertising, subscription platforms and devices and Google Cloud each had double-digit revenue growth this quarter reflecting strong momentum across the business. Total cost of revenue was $39 billion, up 10%. Tech was $14.7 billion, up 10%; and other cost of revenue was $24.3 billion, up 10%, with the increase primarily driven by content acquisition costs, largely for YouTube, followed by depreciation. Total operating expenses increased 20% to $26.1 billion. The biggest driver of growth was expense for legal and other matters, which reflected the impact of $1.4 billion charge related to a settlement in principle of certain legal matters. R&D investments increased by 16%, primarily driven by increases in compensation and depreciation expenses. Sales and marketing expenses increased 5%, primarily reflecting an increase in advertising and promotional expenses. Operating income increased 14% this quarter to $31.3 billion and operating margin was 32.4%. Operating margin benefited from strong revenue growth and continued efficiencies in our expense base, partially offset by the legal charge I mentioned earlier, and a significant increase in depreciation expense. Net income increased 19% to $28.2 billion, and earnings per share increased 22% to $2.31. We generated free cash flow of $5.3 billion in the second quarter and $66.7 billion for the trailing 12 months. Free cash flow in the second quarter was affected by a sizable sequential increase in CapEx and cash tax payments as we make federal tax payments in the second quarter for both Q1 and Q2. We ended the quarter with $95 billion in cash and marketable securities. Turning to segment results. Google Services revenues increased 12% to $82.5 billion reflecting strength in Google Search and YouTube advertising and subscriptions. Google Search and other revenues increased by 12% to $54.2 billion. Search and other revenues delivered growth across all verticals with the largest contributions coming from retail and financial services. YouTube advertising revenues increased 13% to $9.8 billion, driven by direct response advertising, followed by brand. Network advertising revenue of $7.4 billion was down 1%. Subscription platforms and devices revenues increased 20% to $11.2 billion, primarily reflecting growth in subscription revenues. This growth was driven by YouTube subscription offerings followed by Google One, with the growth in paid subscriptions being the biggest driver of revenue growth. Google Services operating income increased 11% to $33.1 billion. Operating margin was flat year-on-year at 40.1% as healthy revenue growth and continued efficiency in our expense base were partially offset by the legal charge I mentioned earlier. Turning to the Google Cloud segment, which delivered very strong results this quarter. Revenues increased by 32% to $13.6 billion in the second quarter, reflecting growth in GCP across core and AI products at the rate that was much higher than cloud's overall revenue growth and growth in Google Workspace, driven by an increase in average revenue per seat and the number of seats. Google Cloud operating income increased to $2.8 billion, and operating margin increased from 11.3% to 20.7%. The expansion in cloud operating margin was driven by strong revenue performance and continued efficiencies in our expense base partially offset by higher technical infrastructure usage costs, which includes the associated depreciation. As we ramp our AI investments, we continue to focus on driving improvements in productivity and efficiency to offset growth in technical infrastructure-related expenses, particularly from higher depreciation. Google Cloud backlog increased 18% sequentially in Q2 and 38% year-over-year, reaching $106 billion at the end of the quarter. This growth was driven by strong demand for our products and services from both new and existing customers. As Sundar mentioned, we have signed multiple billion-dollar plus deals in the first half of the year. As to our Other Bets in the second quarter, revenues were $373 million, and operating loss was $1.2 billion. Within Other Bets, we're allocating more resources to businesses like Waymo, where we see opportunities to create additional value. With respect to CapEx in the second quarter, our CapEx was $22.4 billion. The vast majority of our CapEx was invested in technical infrastructure with approximately 2/3 of investments in servers and 1/3 in data centers and networking equipment. In Q2, we returned capital to shareholders through repurchase of stock of $13.6 billion and dividend payments of $2.5 billion. Turning to our outlook. I would like to provide some commentary on several factors that will impact our business performance in the second half of 2025 as well as an updated outlook for full year CapEx. First, in terms of revenues, we're pleased with the overall momentum we're seeing across the business. At current spot rates, we could see a tailwind to our revenue in Q3. However, volatility in exchange rates could affect the impact of FX on Q3 revenue. As for our segments in Google Services, advertising revenues in the second half of 2025 will be affected by the following: The continued lapping of the strength we experienced in financial service verticals throughout 2024 and year-over-year comparisons will be negatively impacted by the strong spend on U.S. Election in the second half of 2024 and particularly on YouTube. In Cloud, as I mentioned, the demand for our products is high as evidenced by the continued revenue growth and the cloud backlog of $106 billion. While we have been working hard to increase capacity and have improved the pace of server deployment, we expect to remain in a tight demand-supply environment going into 2026. Moving to investments. Given the strong demand for our cloud products and services, we now expect to invest approximately $85 billion in CapEx in 2025, up from a previous estimate of $75 billion. Our updated outlook reflects additional investment in servers, the timing of delivery of servers and an acceleration in the pace of data center construction, primarily to meet cloud customer demand. Looking out to 2026, we expect a further increase in CapEx due to the demand we're seeing from customers as well as growth opportunities across the company. We will provide more details on the 2026 CapEx outlook on a future earnings call. In terms of expenses, first, as I mentioned in our previous earnings call, the significant increase in our investments in CapEx over the past few years will continue to put pressure on the P&L, primarily in the form of higher depreciation. In the second quarter, depreciation increased $1.3 billion year-over-year to $5 billion, reflecting a growth rate of 35%. Given the recent increase in CapEx investments, we expect the growth rate and depreciation to accelerate further in Q3. Second, as we've previously said, we expect some headcount growth in 2025 in key investment areas. In the third quarter, we expect a sequential increase in total headcount additions due in part to the hiring of new graduates. And third, Q3 will reflect the expense associated with the upcoming August launch of the new Pixel family of products. In conclusion, as you heard from Sundar and Philipp, we're pleased with the momentum in the business and excited about the pace of innovation. Our full stack approach, which combines AI infrastructure, AI research and AI products and platforms position us well to deliver new products and services across the company. We're seeing great momentum with our efforts as demonstrated by the increase in cumulative tokens processed. Search revenues are seeing healthy growth with features like AI Overviews, AI Mode, and Lens, offering new ways for users to access the information. Cloud has reached an annual revenue run rate of more than $50 billion and is delivering margin expansion while continuing to invest to meet customer demand. And YouTube has expanded its addressable market by building new services like shorts which now averages over 200 billion daily views. We're excited to see the value our products and services are bringing to customers and partners around the globe. Now I'll turn it over to the operator, and Sundar and Philipp and I will take your questions.

Your first question comes from Eric Sheridan with Goldman Sachs.

Maybe one for Sundar and one for Philipp. Sundar, when you think about the journey you're on with respect to the evolution of products and platforms. How do you think about some of the implications of changed consumer behavior and how investors should think about that from the volume perspective versus the monetization perspective? So I think there's a lot of long-standing dynamics out there about clicks and click monetization that might be very different when you look out over the next 3 to 5 years. And Philipp, when you think about the evolution of YouTube, you made a number of comments there about subscription revenue. I'm just curious how you think about the mix of advertising versus subscription? And what some of your key learnings might have been as the subscription side of the business continues to scale?

Thanks, Eric. I appreciate the question. Looking ahead, based on everything we are seeing, people are excited about AI and are adopting it well across our products. In terms of multimodality, how users have altered their behavior to incorporate images through Lens and Circle to Search as a seamless part of their interaction with Google indicates that they will adopt these features very effectively. Regarding your question about clicks and click monetization, perhaps Philipp can elaborate on that. Overall, as we develop our organic experiences, we have a solid understanding of how to enhance monetization, which will integrate well with those experiences. We will prioritize the organic experience for newer surfaces like the Gemini app in the near term. However, similar to what we are doing with AI Overviews and AI Mode, we will eventually introduce strong commercial experiences there as well, and we anticipate that users will adapt as they always have. Maybe Philipp can provide additional insights. Philipp?

Yes. So on your question on YouTube subscriptions versus ads, look, I mean we love our ads business. We love our subscription business. YouTube subscriptions are increasingly important for YouTube. We'll definitely continue our long-term focus here. We had a strong growth across the YouTube subscription products, which include, just to be clear, YouTube TV, YouTube Music, and Premium. And I think one common theme for our subscription services in general is offering viewers more choice here. We also have a very deep understanding of the monetization side here. Where are we monetizing more with ads, and where can we potentially monetize more with subscriptions. So I think we will continue this as a double tier strategy actively going forward.

Our next question comes from Doug Anmuth with JPMorgan.

One for Sundar and one for Philipp. Sundar, can you just talk about how you're thinking about your current access to compute even as you spend $10 billion more this year in CapEx, you also said that you're still in a tight supply environment. So just trying to marry those? And then Philipp, perhaps on search growth, can you talk a little bit about Payclick and pricing growth just within the 12% search growth? And how we should think about volume versus monetization trends going forward?

Doug, regarding the capital expenditures, we are experiencing strong momentum in our portfolio, especially in cloud. You are correct that we find ourselves in a tight supply environment. We are increasing our investments to expand, but there is a time lag before these additional investments will manifest in future years. Therefore, both conditions are concurrently true. We are planning for the future and making investments, and it is exciting to see the progress, particularly in the cloud sector. The breadth of our AI portfolio and our offerings, including models on GPUs and TPUs for our customers, are driving significant demand, and we are investing to meet that demand.

And on your paid click question, look, to be very clear, I think we said this before, we manage the business to drive great outcomes for our users and an attractive ROI for our advertisers. We actually don't manage to pay clicks and CPC targets. Some of the product and policy changes we make actually drive better monetization at the expense of paid clicks. You will actually see in the 10-Q, paid clicks were up 4% year-on-year. But a number of factors affect these metrics from quarter to quarter, such as a few examples, advertiser spending, product changes, policy changes, user engagement, and so on. So it's really important when it comes to paid clicks and CPCs to avoid drawing overly broad conclusions solely based on these metrics.

Our next question comes from Brian Nowak with Morgan Stanley.

I have two questions. First, Sundar, there's been a lot of talk about agentic search for commercial activities and broadly deployable agents. From a technology standpoint, when you collaborate with the engineering teams working on these new agentic capabilities, what do they consider to be the main technological challenges that need to be addressed in order to launch scalable agents for commercial queries? My second question is related to updates you’ve previously shared about the sources of internal efficiency gained from GenAI-enabled capabilities. Do you have any updates on that? Additionally, what insights can you provide regarding friction points that need to be addressed for some of these internal GenAI tools?

Let me start by discussing agentic capabilities. We are heavily investing in our series of 2.5 models, especially Pro. There's exciting progress being made, even in models that are not fully released yet. The main challenge we face is chaining a sequence of events reliably. This involves dealing with compounded latency and costs while ensuring a seamless experience for users. We're making progress in these areas, and it all needs to fit together. The good news is we are advancing robustly, and we believe we are at the forefront of this development. Over the past year, we've enhanced the efficiency of our models for various capabilities. Looking ahead, we think this will really enable agentic experiences. Although the potential is there, the processes can be slow, costly, and sometimes fragile. However, we are addressing these issues, and I believe that 2026 will see a broader use of agentic experiences, which is an exciting prospect. Regarding the second part of your question about sources of generalization, I assume you're asking how we are leveraging these developments internally. We are starting to implement agentic coding journeys for our software engineers. It's been exciting to observe that in recent months, particularly in the last few weeks, our team members are increasingly engaging in agentic workflows in software engineering. A few months ago, these experiences had numerous friction points, but we are resolving these, and employees are beginning to adopt these practices internally, particularly in coding and other areas. This represents exciting progress, and I anticipate that we will continue to expand these journeys for our users. So, I'm looking forward to that.

Our next question comes from Michael Nathanson with MoffettNathanson.

Sundar, I have two for you. At IO, you announced a partnership to Warby Parker to develop glasses. So I wonder if you show your view of how important a cycle of new devices will be to further scale AI and do you envision a world in which the more functional are essential to our consumer experience. That's one. And secondly, how does Google Search with AI Mode usage differ versus Gemini standalone apps? So I'm wondering, are you seeing any differences in usage or the types of consumers who go to the app versus who go to traditional search with AI?

I believe that whenever there is a change in input/output, it can lead to the creation of new experiences, including hardware experiences. AI will play a significant role in this. We've always anticipated the potential of glasses and other devices, and I think AI will inspire a new wave of innovation in that area. We're very enthusiastic about our investment in glasses and have noticed a significant improvement in experiences compared to the previous version. This new emerging category is exciting, but I expect that smartphones will remain central to the consumer experience for at least the next two to three years. So, phones will still be at the forefront of consumer experiences, though we are also looking forward to developments in new categories. Regarding your question about AI Mode and the Gemini standalone app, there are certain scenarios where both provide excellent experiences, but there are also specific cases. In situations where users seek information and want to rely on it, the strengths of AI Mode are apparent. Users can feel assured that the information is reliable. The Gemini models utilize search as a core component, which enhances that experience, and user feedback has been very positive. In contrast, with the Gemini standalone app, users often engage in lengthy conversations or even therapy-like interactions. These are all new experiences that we are witnessing. I'm pleased that we have both platforms to innovate in these areas, and some functions will be served by both applications. Over time, we aim to create a more seamless experience for our users.

Our next question comes from Mark Shmulik with Bernstein.

Sundar, it seems there's almost like a daily news report about the AI talent war and high-profile folks moving around which is kind of like your perspective on how you think Google has been doing it both kind of attracting and retaining key AI talent. And Anat, along the similar lines, how do we think about AI-related resourcing costs alongside kind of the step up in capital investments required to go build for AI?

Mark, in response to your question, we have navigated similar situations before. We have consistently invested significantly in talent, including AI talent, for over a decade. We possess a remarkable range and depth of talent. From my experience, leading professionals seek opportunities to be at the forefront of innovation. Therefore, having a clear mission and being state-of-the-art is crucial for them, along with access to computing resources and the chance to collaborate with top industry peers. It's all about leveraging these factors to create meaningful impact, and I believe we are competitive in these areas. Throughout this period, our retention metrics and the influx of new talent remain strong. While individual cases may attract attention, a deeper analysis of our numbers shows we are performing well, and we will keep investing in our workforce, talent, and necessary computing resources to capitalize on future opportunities. Now, I'll hand it over to Anat.

Yes, on the question on how we integrate this into our overall cost structure. And I've mentioned before, having the benefit of having the full stack includes research, which is our people and one of our most critical resources. So we make sure that we invest appropriately to have the best and brightest minds in the industry sitting here at Google and advancing our innovation to customers. It is part of what you're seeing now in our operating expense line across the organization. But we're also working hard to offset not just growth in investment across the business. But also to ensure that we can allocate research appropriately. So Sundar mentioned earlier, the use of AI tools within the company. So that's another area where we can drive efficiency across the businesses to use these tools internally in terms of how we run the organization. Then we're continuing on the same efforts that I've talked about before with regards to running the company with a high level of discipline, execution, and driving efficiency across the business.

Our next question comes from Ross Sandler with Barclays.

Great. If I can ask two, that would be great. So the first one is on Search click-through rates as a driver of monetization. So you guys have done a great job over the past decade of driving better ad relevancy and higher click-through rates in Search. Just curious, as we look forward and we see lower ad impressions per SERP and all these things that are changing with AI overviews and different AI SERP formats. How do you feel about your ability to drive CTR going forward? And then the second question is, it looks like you're now working with OpenAI for some aspects of cloud infrastructure. Just curious how that relationship might expand in the future?

I can make the first one. Look, specifically referring to AI Overviews, if I understood your question correctly, they continue to drive higher satisfaction. They continue to drive higher search usage. They're scaling up very nicely and they're actually working for our entire user base now scaled to over 2 billion users in over 200 countries. So very happy with this development. But when it comes specifically to the monetization of it, we talked about it before. We see monetization at approximately the same rate, which gives us actually a really strong base on which we can then innovate and drive actually a more innovative and new and next-generation ad formats. That's how we look at it at this moment in time.

On the second part, with respect to OpenAI, look, we are very excited to be partnering with them on Google Cloud. Google Cloud is an open platform, and we have a strong history of supporting great companies, startups, AI labs, et cetera. So super excited about our partnership there on the cloud side and we look forward to investing more in that relationship and growing in there.

Our next question comes from Mark Mahaney with Evercore.

I have two questions, please. First, Philipp, could you describe what you see regarding the advertising environment for the second half of the year compared to last year? Does it appear more or less certain than last year, considering the results were quite strong? Are there any unusual concerns you anticipate for the latter part of the year? Additionally, Sundar, I want to ask you again about the two surfaces approach to Search. You must have some internal metrics indicating that this is the best way to approach the market. However, there may be an argument that having a unified search that can distinguish the intent behind queries, whether for pure information or commercial purposes, could provide a significant advantage over other offerings. Please share some insights on what metrics suggest that the two-surface solution is optimal.

So let me start. Look, we said our ad business performed strongly in Q2. Give you maybe some vertical color of it in Q2, Search and other performance was led by growth across all verticals. We mentioned the largest contributions from retail and financial services, which was primarily due actually to strength in insurance. We saw health care as a sizable contributor to growth as well. Look, we're only a few weeks into Q3. So I think it's really too early to comment on anything happened in the second half of the year.

Mark, regarding the second part of your question, I believe that with these two surfaces, we are effectively addressing the full range of human capability. Therefore, the division for these two surfaces is appropriate at this time. As you mentioned, Search is more focused on information, while we view the Gemini app as a more personal and proactive assistant that enhances various aspects of daily life. You can envision tasks such as making detailed calls or creating long videos being handled better by the Gemini app today. As we've previously experienced through various evolutions, we are improving our understanding of user intent and simplifying complexities for them. In the past, users needed to separately query for text, images, and videos, but we've succeeded in integrating these into a seamless Universal Search experience. We have the ability to combine different experiences in a user-friendly way and take on the hard work for them. However, in these early stages of new paradigms, we want to ensure we align with their current expectations. Over time, this will allow us to better serve their needs. This is our current perspective on the matter.

Our next question comes from Ken Gawrelski with Wells Fargo.

Two, if I may, please. The first on Cloud, I'm just hoping maybe you could clarify your back half outlook. Given last quarter, you talked about some supply constraints that would ease towards the end of 2025, but yet you put up a really nice acceleration in 2Q. Now you're talking about some supply constraints easing into '26. If you could just clarify a little bit on the back half outlook for cloud given the strong results in 2Q? And then the second is a bigger picture question, which is, in agentic experience, does it democratize the web like Search did 2 decades ago, enabling discovery in the long tail? Or does it lead to more concentration with a smaller group of vertical winners? Would love if you could opine on that.

Okay. On your first question on the cloud second-half outlook and the comments I previously made on with regards to where we're going to see the capacity increase. So obviously, we're working hard to bring more capacity online, which means data centers and servers that are coming online. And we see more of an increase towards the back end of the year. But we're increasing capacity with every quarter that goes by, as you can see with the growth rates we've had both this quarter and the previous quarter. As Sundar mentioned earlier, this is not the type of investment that's a light switch. It takes time to make this investment. So what you're seeing now is investment we made some time ago, that's now translating to additional capacity coming online, but more of that towards the back end of the year. I will say, it's important as you think about cloud growth, not to think about this in a linear fashion, because the quarter-on-quarter growth rates could depend on the timing of capacity delivery and when that comes online, so that could move a little bit from quarter to quarter.

Regarding the agentic experience, I believe there was a previous inquiry about the technological aspects and our progress. Clearly, there's value for all parties involved, and this will play a crucial role in unlocking potential. As we advance in enhancing the agentic experience, it should lead to a significantly improved experience for users. Consequently, more knowledgeable players will embrace these developments, aiding their growth and adaptation to the current landscape. Much like the initial stages of the web, there are elements that will broaden access and increase usage scenarios. However, it's essential to recognize that this isn't solely a technology-driven initiative; we also need to address the business models for the various stakeholders involved. This will be a key aspect of our ongoing evolution.

And our last question comes from Justin Post with BAML.

A couple for Sundar. First, it looks like the subscription businesses are all tracking well. And certainly, Gemini 2.5 has got some much good reviews. How are you doing with Gemini subscriptions? I know it's a focus area for the company. And anything you can kind of do to accelerate the consumer subscriptions of Gemini within Google One. And then secondly, just on the course change of CapEx, obviously, a bigger increase, which appears to be because of cloud demand. But just your comments on cloud ROI and I'm sorry, CapEx ROI. What gives you confidence that you're going to get good returns on that spend?

Google One continues to be an appealing option, especially with our AI plans like Pro and Ultra, and particularly with the new 2.5 series models, which have shown strong growth. We had a solid quarter and are excited about the opportunities ahead. We anticipate that our AI offerings will further drive growth in this sector, and we’ve noticed positive momentum since launching the 2.5 Pro. Regarding our cloud investments, we are committed to delivering significant value through our offerings, and it's crucial to recognize that our customer satisfaction remains high with low churn rates. Our investment efficiency has improved, which is evident in our margin performance over the years. This gives us confidence that our investments will yield a healthy return, especially during this AI-focused period where the value we provide to customers is also increasing significantly. All of this positions us well moving forward.

Thanks, everyone, for joining us today. We look forward to speaking with you again on our third quarter 2025 call. Thank you, and have a good evening.

Thank you, everyone. This concludes today's conference call. Thank you for participating. You may now disconnect.