On August 27, Alphabet (NASDAQ:GOOGL) agreed to pay £260 million, about $353 million, to settle a lawsuit accusing Google of abusing its dominance over the Play Store, including its standard 30% commission. The claim, led by academic Barry Rodger, once sought more than £1 billion and was due for trial next month at London’s Competition Appeal Tribunal before Google settled without admitting liability. Next to the $195 billion to $205 billion Alphabet plans to spend on AI infrastructure this year, the payout is a rounding error. But it arrives while investors are being asked to trust that far larger bills, on chips, debt, and new shares, will eventually pay off.
Ads And Cloud Keep Delivering
Alphabet’s core business gives it plenty of room to absorb a settlement like this one without blinking. Google Search generated $63.27 billion in the second quarter, up 16.7% from a year earlier, while YouTube advertising added another $11.05 billion, up 12.8%. Total advertising revenue reached $81.63 billion, a 14% increase, and overall revenue climbed 24% to $119.8 billion. CEO Sundar Pichai has credited artificial intelligence for much of that momentum, pointing to AI Overviews, which now deliver search results to more than 2.5 billion people a month, with AI Mode serving over 1 billion more. That scale, according to the company, is unmatched by any other AI product, and it is translating into more queries and more ad inventory rather than cannibalizing the search business some investors once feared.
Cloud computing is growing even faster. Google Cloud revenue jumped 82% to $24.8 billion in the quarter, and its backlog of contracted future business swelled to $514 billion, giving management a long runway of visibility. Operating income rose 30% year over year, with margins expanding two percentage points to 34%. That combination, a profitable advertising engine paired with an accelerating cloud business, is what lets Alphabet fund an unprecedented buildout without running dry. The company still held $242.5 billion in cash and marketable securities at the end of June.
Paying For Growth Gets Pricier
The UK settlement is a reminder that legal risk keeps compounding for Google. It is the fourth mass lawsuit against a major tech company to reach London’s tribunal since the start of 2025, following similar cases against Apple, Qualcomm and Sony, and it still needs the tribunal’s approval before £160 million goes to developers who sold apps between August 2018 and July 2026, with another £100 million covering legal costs. The dollar amount is small, but the pattern of scrutiny over Google’s commissions is not going away.
The bigger risk sits in how Alphabet is paying for its AI buildout. The company raised $49.6 billion selling new stock in a single week in June, added $56.2 billion of debt in the first half of the year and another $25 billion of notes in August, and stopped repurchasing shares entirely after buying back $28.3 billion worth a year earlier. Capital spending guidance for this year now sits at $195 billion to $205 billion, raised from $180 billion to $190 billion in July, and about 60% of that technical infrastructure spending goes toward servers. Reports that Nvidia-based server prices are rising more than 15% on systems shipping in early 2027 suggest next year’s already-larger budget will buy less computing per dollar, right as chief financial officer Anat Ashkenazi has warned capital spending will rise “significantly” again in 2027.
What The Market Is Pricing
Hedge fund ownership rose to 275 funds holding Alphabet last quarter from 265 the quarter before, a modest sign of accumulating conviction even as the spending numbers grow more extreme. Short interest sits at just 1.24% of the float, pointing to little organized skepticism about the story. Shares trade at 16.69 times forward earnings as of August 28, a multiple that looks inexpensive next to Alphabet’s growth rate, suggesting the market has not fully priced in either the scale of the spending ahead or the returns it might eventually produce.
Two Bills Alphabet Still Owes
The $353 million settlement is not what will decide whether Alphabet’s AI bet works. That answer depends on whether the historic capital raising, debt issuance, and paused buybacks translate into returns that match the spending. The 82% growth in cloud revenue and the 2.5 billion people now using AI Overviews each month make a strong case that the money is already working. But the servers underpinning that growth are reportedly about to cost more, and Alphabet has not yet said what its 2027 budget will look like. Next to that uncertainty, the regulatory bills look easy to pay.
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