06-reference

stratechery google earnings cloud search llms

Sun Feb 08 2026 19:00:00 GMT-0500 (Eastern Standard Time) ·reference ·source: Stratechery ·by Ben Thompson
googleearningscloudsearch-advertisingllmcapex

Google Earnings, Google Cloud Crushes, Search Advertising and LLMs

Thompson covers Google’s Q4 2025: $114B revenue (up 18%), $34.5B net income (up 30%), record $403B annual revenue. The headline is the CapEx guide — $175-185B for 2026, roughly double 2025 and $65.5B above Wall Street expectations.

The justification comes from two areas. First, Google Cloud grew 48% YoY with margins expanding to 30% (best ever), with backlog doubling to $240B. The supply constraint narrative holds — growth plus margin expansion means the bottleneck is infrastructure, not demand. Second, and more importantly, LLMs are expanding Google Search’s addressable market in three ways: (1) better query understanding improves ad relevancy and click-through, (2) LLMs unlock monetization of longer/complex queries and non-English languages — both of which increase ad inventory, the most powerful revenue lever, and (3) experimental ad formats in AI Mode (similar to what OpenAI plans for ChatGPT).

Thompson’s sharpest observation: what OpenAI plans as its entire advertising business is essentially Google’s side project. Google’s LLM-driven search advertising upside is so large it dwarfs conversational AI ad experiments. The implication is that Google’s CapEx is easier to justify than any other company’s because the revenue uplift from better search monetization is immediate and high-margin.

RDCO Mapping

The inventory expansion thesis (LLMs making more queries monetizable) is a useful framework for thinking about how AI expands addressable markets generally — applicable to consulting and data services too.