Q4 2025 Earnings Call — February 4, 2026
Brian Nowak (Morgan Stanley): Thanks for taking my questions. I have two, one on Agentech, one on YouTube. The first one on Agentech Thunder, I'd be curious to hear about, as you look back at 2025, where do you think you made the most progress on new types of agentic commerce products? And then looking at the 26, where are you most optimistic to sort of have even more progress and utility for users and your advertisers? And the second one is on YouTube. You know, we've seen a lot of the new content creation models like Genie, et cetera. Walk us through sort of the alphabet long-term vision for how Genie and some of these content creation tools could be integrated into YouTube over time.
Management: First, maybe I'll take the agent tech part first. I definitely think 25 was more about laying the foundation, getting the models to start being more robust in agent tech use cases. And obviously, coding is the area where the progress was the most felt. In areas like commerce, I think we spent the year working with the ecosystem to develop the underlying protocol that's going to be needed for this agentic world. The launch of Universal Commerce Protocol at NRF in January with a bunch of partners, founding partners, I think has been super well received. So I'm excited now that we've laid the foundation of interoperability on which agentic commerce can work. And now we are integrating those experiences into Gemini AI mode and so on. So I think this is the year where you will see consumers actually being able to use all of this. And I'm excited about the opportunity ahead.
On YouTube, look, super excited by Genie. I'm blown away by, you know, spent a lot of time creating this incredible worlds. I think it's going to have a wide level of applicability. I think an area where we shine in general is multimodality and representing the real world. And I think Genie is a further step in that direction in terms of building world models. All the innovation we are doing, be it, you know, Genie, all that work we bring in into our products and to our cloud customers. And YouTube is going to be a natural place for creators. We are going to keep incorporating these tools. Already creators are responding by adopting these, but we do want to put creators at the center of the experience. And that's very, very important to us. And, you know, So it's for us making sure YouTube is a voice for creator expression as the foundation by which we will approach this.
Eric Sheridan (Goldman Sachs): Thanks so much for taking the question, too, if I could. Over the last couple of earnings calls, we've talked a lot about imbalances between demand and capacity for AI, both internally and externally. With the step function change and absolute capital dollars you're projecting now in 26, can you talk about the pathway to closing the gaps for the need for compute, both internally and externally, and how to think about some of the outputs of closing that gap? As the year progresses. And again, the second part would be against that level of spend that you're now projecting for 26. How do you think about continuing to find operating efficiencies inside the business to fund those growth investments as well?
Management: Thanks, Eric. You know, you are right. And, you know, we've been supply constrained, even as we've been ramping up our capacity. Obviously, you know, our CapEx spend this year is an eye towards the future. And you have to keep in mind some of the time horizons are increasing in the supply chain, et cetera. So we are constantly planning for the long term and working towards that. And obviously, how we close the gap this year is a function of what we have done in the prior years, right? And so there is that time delay to keep in mind. I expect the demand we are seeing across the board, across our services, what we need to invest for future work for Google DeepMind, as well as for cloud, I think is exceptionally strong. And so I do expect to go through the year in a supply-constrained way.
And maybe Anat can touch on the second part. Thanks, Eric, for the question. Now, I've mentioned on one of the previous earnings call our approach to how we look at efficiency and productivity. And we don't view this as an episodic one-time project or effort, but rather how we run the business on a regular basis and always seek additional opportunities to drive efficiency across the business. And certainly with the demand we're seeing, whether it's from external customers or across the organization, the more capital we can free up within the organization to invest, the better we can turn this flywheel of making investments to drive future growth. And we're doing this across the organization, whether it's within our technical infrastructure, certainly when we invest at these amounts, we look at how we can ensure that we are the most efficient with every dollar that goes towards our technical infrastructure.
There are scientific innovations that are part of that process. Technical innovation, as you know and we've mentioned before, we primarily focus on construction of our own data centers. We do partner with some external parties on lease on occasion, but most of our data center we construct ourselves. And we ensure that we do it in the most efficient way, in a way that matches our workloads and our needs. We look at coding productivity that Sundar mentioned in the past. About 50% of our codes are written by agents, coding agents, which are then reviewed by our own engineers. But certainly it helps our engineers do more, move faster with the current footprint. We look at how we run the business across the organization. So using AI within the business to drive daily operations. It can be all the way from the engineering team to small teams within our back office. Even within my finance team, for example, we deployed agents within our treasury organization. We're deploying agents within how we run, how we pay and reconcile invoice, et cetera. So there are opportunities across the business that we evaluate on a regular basis to ensure we can free up more of that capacity to invest in our future.
Doug Anouf (J.P. Morgan): Thanks for taking the questions. I have two. Over the last couple of years, we've seen considerable large language model leapfrogging, and many expect that to continue. What are the ways that Google can build and maintain its Gemini position around data and distribution and product integration? And then how should we think about the potential for TPUs to move outside of Google Cloud and into external data centers and develop as an incremental revenue stream?
Management: Look, I think the LLM frontier, it's been an exciting trajectory, and I think 2026 will continue to show that progress. We're obviously improving these models across many paradigms, right, on pre-training, post-training, test time compute, and so on. And we are bringing multimodal models into the picture. We are bringing agent tech capabilities, you know, the coding area showing a lot of progress and obviously integrating all of this together and offering a great experience. You know, customer experience through our products, as well as through our API, APIs to our cloud customers, you know, to me feels like there's a lot of headroom ahead. And as you've seen our trajectory over the past two years in terms of how we've been making progress, I think we are in a very, very, you know, relentless innovation cadence. And I think we are confident about maintaining that momentum as we go through 26.
In terms of TPUs, I would think about it as it's reflected in our overall part of what makes Google Cloud an attractive choice is the wide choice of X-Raters we bring to bear here. And we meet customers in terms of what their needs are and the choice, as well as other things we bring as part of Google Cloud, the end-to-end efficiencies in our data centers, all of that comes to bear. And that's what you see in the strong momentum in Google Cloud. And given the overall investment we are making, we expect to be able to drive that momentum there. So that's how I would think about it.
Mark Mahaney (Evercore): Thanks. Two questions. One, could you just comment a little bit on the YouTube ad revenue, that 9% year-over-year growth. It sounded like direct response was good, and it sounded like from search that retail came in relatively strong. So it's a little surprising that didn't kind of come through in the YouTube ads revenue growth. And then Sundar, can I ask you to try to get ahead of a debate in the market, which is kind of maybe at a deep-seek moment again. You talked earlier about Jim and I being the AI engine for some of the most successful software SaaS companies out there in the world, and it just seems like there's a market belief that the software companies are kind of losing seat power, losing pricing power, and it looks like it could be a really terrible customer base. I can't imagine that that's actually going to happen, but could you just talk about it? You're at the forefront of AI and the impact that that's having on software companies. Why wouldn't that be, or why would it be undermining the economics of your large software SaaS company base?
Management: So Mark, so first of all, thank you for the question. For the full year 2025, our YouTube's annual revenue surpassed 60 billion across ads and subscription. In Q4, YouTube ads was driven indeed by strong growth and dive response. On the brand side, the largest factor negatively impacting the year-over-year growth rate was lapping the strong spend on US elections. We also saw a slight impact in some other brand-related verticals. But taking a step back, I think it's important to think about YouTube ads and subs holistically, because when a user shifts from being an ad-supported user to YouTube Music and Premium customer, it has a slightly negative impact on YouTube ads revenues, but a positive impact on our business. And we had strong revenue growth in YouTube subscriptions this quarter, particularly in the YouTube Music and Premium category.
Maybe the interesting part is what we're actually excited about of roadmap and brand, the opportunity on connected TVs, more innovative ad formats. For example, the shoppable mastheads I spoke about earlier that we piloted during Cyber 5. We're working really, really hard to further connect brands and creators, scaling sponsorships and enabling advertisers to showcase their products, their services during high visibility spotlight moments. We continue to expand the functionality of the Creator Partnership Hub making it a lot easier for brands to actually find creators and develop campaigns. We're heavily focusing on brand deals, on measurement efforts. So there's a lot of interesting work in the pipeline. And on top of that, we actually see opportunity also for upside with performance advertising. There's a lot of momentum with demand gen adoption across small and medium advertisers. We're also excited about the opportunity for continued ads innovation and direct response, like, for example, shoppable formats, including in the living room, which is then helping drive strength in retail, the continued momentum in shorts and so on. So overall, we're quite excited.
Great. And Mark, in terms of Gemini adoption and what this moment means for SaaS, et cetera, look, at least from my vantage point, I definitely see we have very, very good SaaS customers who are leaders in their respective categories. And what I see the successful companies doing is they are definitely incorporating Gemini into deeply in critical workflows, be it on improving their product experience and driving growth or using it to drive efficiency within their organizations. And I think it is an enabling tool, just like it has been an enabling tool for us across our products and services, be it search, YouTube, et cetera. I think the companies who are seizing the moment, I think have the same opportunity ahead and at least we are excited about the partnerships we have there and the momentum, if I look at it in terms of their tokens usage, et cetera, the growth has been very robust in Q4.
Mark Smolik (Alliance Bernstein): Yes, thanks for taking the questions, too, if I may. The first one is, can you talk a little bit more about the relationship between investment levels and how you kind of expect core performance to trend? Is there like an operating income or a free cash flow objective that you solve towards? Or how do you think about greenlighting resources and projects? And then the second question for all of you, you know, a year ago, we probably could have guessed the answer to this question. But given where we are today, for each of you, what keeps you up at night here as you think about the Google story and what's next?
Management: Thanks, Mark. Let me start with a question on the investment framework, and it's an important one, and as you can imagine, an important one for us as well. We have a highly rigorous framework that we use internally where we look at all the needs for investment, whether it's from our own organization or from external customers' and have an estimate of what that investment could potentially yield, obviously not just near-term but long-term as well. So we take that into consideration when we make the following decision. The first one is the total investment that we make across the company. This was, for example, in 2025, the $91 billion we invested in CapEx. And our estimate for CapEx investment this year. So what's the total envelope that we want to invest to ensure that we can drive both near-term and long-term growth for the company? And then the second way we use that framework is to just allocate these funds across the organization, determine where we should make these investments. And throughout the year, as you can imagine, we always look to understand where things are moving, whether it's the external dynamics or internal dynamics. And I've mentioned some of the supply chain pressures we're seeing externally. So we look at this with a highly rigorous framework to make sure that we're making the right decision.
You know, it was exciting to see the fact that we're already monetizing, and you saw it in the results that we've just issued this quarter, the investments that we've made in AI. It's already delivering results across the business. I know in cloud, it's very obvious external, but you've heard the comments on the success we're seeing in search, the comments from Sundar and from Philip, and then the frontier model development that really serves as the foundation for the organization. We then also look at just the cash flow, cash flow generation and the health of our financials and the balance sheet, that's important as well. So we take that into consideration when we make the decision about the overall level of investment. We want to make sure we do it in a fiscally responsible way and that we invest appropriately, but we do it in a way that maintains a very healthy financial position for the organization.
And yeah, maybe I can answer on what keeps us up at night. Look, I think overall, we've been on this AI-first trajectory for over a decade now, and it's what we've been methodically thinking our way through. It's the reason why we've been working on TPUs for over a decade as an example. But I think specifically at this moment, maybe the top question is definitely around compute capacity. All the constraints, be it power, land, supply chain constraints. How do you ramp up to meet this extraordinary demand for this moment? Get our investments right for the long term and do it all in a way that we are driving efficiencies and doing it in a world-class way. And so that's where I think we are meeting the moment well. But it's definitely an area where I'm spending a lot of time on.
Michael Nathanson (Moffitt Nathanson): Thanks. One for Sundar, one for Anat. Sundar, you mentioned the Universal Commerce Protocol a bunch of times. I wanted to spend some time talking about the rationale for developing it, the opportunity that you see it solves for, and what it means for the product discovery funnel for consumers. And for Anat, any quality you can provide on a capex guide between longer duration assets like buildings, and infrastructure and shorter cycle assets like technical equipment, that'd be helpful.
Management: Thanks, Michael. And obviously, people go through a lot of commercial journeys across many of our surfaces, search, YouTube, Gemini app, and so on. So I think there's, as well as we support through cloud and ads, our entire retail partners as well. And the opportunity to, you know, improve the experience, I think, can be a kind of a huge foundational uplift here. But it's important to be approaching it keeping in mind that our users as well as, you know, merchants here and figuring out that value. Part of what's been good in designing the Universal Commerce Protocol is it makes it much easier for users to complete transactions, but at the same time, it allows merchants to help showcase the range of their offerings if they want to make promotions, et cetera. So all of that is built into the protocol. And I think you have to get that value prop for the ecosystem right to make the experience better. And so it's foundational and more importantly, we are now implementing the protocols and our Gemini models are making progress in those agentic capabilities. And I think, so I'm excited about a future where as people are going through discovery, searching, finding new things, if they're interested in acting upon it, all of that is seamless. And so it overall creates an expansionary moment.
And the question with regards to the capex and what makes up the total that we've announced for this year and last year, approximately 60% of our investment in 2025, and it's going to be fairly similar in 2026, went towards machines, so the servers. And then 40% is what you refer to as long duration assets, which is our data centers and networking equipment. And I think you're probably referring to the depreciation delta between them. Those long-term duration asset depreciate over, you know, the building could be 40 years or longer. Other components may be less than that. Another important component is how we allocate this capex. And we've commented in the past about the allocation of our ML compute across the business. And for 2026, just over half of our ML compute is expected to go towards the cloud business.
Ross Sandler (Barclays): Great. Just a question on the native Gemini 750 million. So we added 100 million MAUs in the fourth quarter. Could you just talk high level about usage and retention of native Gemini? And is this 750 the right way to measure your progress against companies like ChatGPT? Or is there another cohort of users that aren't in that 750 that maybe we should also consider?
Management: Ross, I think we definitely saw, I would say, an extraordinary period of growth in Q4 for Gemini app. It's not just the growth in monthly active users, but there is definitely, there was a sharp increase in engagement between per user on the app. So all the metrics, be it active usage, the intensity of usage, retention, all showed distinct progress across iOS, web, Android, et cetera, and geographically, globally. So it definitely all the product experience improvements, the work we did with NanoBanana, the progress with the Gemini models, all translated into strong momentum and that momentum is continuing. So we are excited about that and we'll continue to invest. Obviously, there are many people who are getting a deeply AI native experience in the context of AI mode and search as well. And we are definitely seeing a strong growth and progress and the introduction of Gemini 3 in AI mode was a very positive driver as well. And obviously, you know, we'll continue to evolve these experiences and I'm excited about the opportunities there.
Ken Gorolsky (Wells Fargo): Thank you very much. Two, if I may, both on search. First, could you walk us through how you are evolving your views on the monetization of AI search activity, given the more conversational nature and longer periods of engagement per session? Consumer utility is increasingly driven by the on-platform results, not specifically the link outs and referrals. In that construct, how do you think about increasing the revenue opportunity to match the consumer utility? And is this increasingly where premium subscriptions play? And then question two, and it's related, as you think about partnerships such as the new Apple partnership on Siri, how do you think about the right way to align for success with those partners? Previously, as disclosed in the DOJ documents, etc., it was a revenue share relationship. But now, if you think about the utility that you're driving through AI Search and through Gemini on those platforms, it may be less related to the actual, quote-unquote, search revenue. Could you just talk a little bit about how you align with partners for success there?
Management: So first of all, it may be worthwhile to say that the acceleration we saw in the search was not due to a single driver, but was really the result of many different parts of our business showing strength and working well together. And maybe I quickly add the vertical perspective, retail, finance, health, drove actually the greatest contribution to search revenue, though nearly every major vertical actually accelerated in Q4. More specifically to your question, the ongoing innovation is, as you know, core to what we do and the enhancements to the user and the advertiser experience really continue to drive our performance and we make hundreds of these changes every quarter.
We see air overviews and air mode continue to drive greater search usage and growth in overall queries including important and commercial queries. Gemini based improvements and search ads help us better match queries and craft creatives for advertisers. I talked about the understanding of intent and how this has significantly expanded our ability to deliver ads on longer and more complex searches that were frankly previously difficult to monetize. AI Max, for example, is already used by hundreds of thousands of advertisers and continues to unlock billions of net new queries. In that sense, we see strength with SMB advertisers expanding their budgets and adopting automation tools leading to better ROI. On the creative side, we're using Gemini to generate millions of creative assets via text customization in AI Max and P Max and so on. We're very pleased with what we're seeing here.
Justin Post (Bank of America): Great. I just want to follow up on the Gemini app. Obviously, great growth there. Are you seeing any cannibalization of search as far as activity as people start using that app more? And then second, on monetization, where are you on that? And with Agentic and other ads coming, could that be incremental to your growth over the next few years?
Management: Right now, overall, look, I think we are giving people choice. People are obviously using search, experiencing AI overviews and AI mode as part of it, and Gemini app as well. And the combination of all of that, I think, creates an expansionary moment. I think it's expanding the type of queries people do with Google overall. And so overall, some of it all is what we see as a growth opportunity. And we haven't seen any evidence of cannibalization there. And maybe Philip can comment on the monetization.
Management: Yeah, I think Sundar previously commented on agentic and how we think about it. And look, in general, as with all of our products, we really focus first and foremost on creating a great user experience. And we're very excited about where we are with the ads and AI overviews. Early experiments in AI mode including innovations like direct offers and our roadmap for the future in terms of the Gemini app today we are focused on a free tier and subscriptions and seeing great growth as Sundar discussed but ads have always been part of scaling products to reach billions of people and if done well ads can be really valuable and helpful commercial information and the right moment will share any plans but as we've said we're not rushing anything here.
Management: And that concludes our question and answer session for today. I'd like to turn the conference back over to Jim Friedland for any further remarks.
Management: Thanks, everyone, for joining us today. We look forward to speaking with you again on our first quarter 2026 call. Thank you and have a good evening.
Management: Thank you, everyone. This concludes today's conference call. Thank you for participating. You may now disconnect.