🤖 Even Google Has to Rent

Good morning to all the earnings report watchers.

Google beat on almost every number last night and the stock still fell.

Today we cover the one line in the call that sent four other stocks flying.

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Last night, Alphabet (Google's parent) reported its Q2 numbers, and most of them were huge.

Revenue hit $119.8 billion, up 24% from a year ago and ahead of what Wall Street wanted.

The headline number looked absurd: earnings of $9.11 per share against the $2.91 analysts expected.

But the number that actually matters is the cloud.

Google Cloud grew 82% in a year, to $24.8 billion.

Analysts expected around 63%.

Growth didn't slow down, it sped up. Backlog (sales already signed but not yet delivered) now sits at $514 billion.

Then came the capex.

Google raised its spending plan for the year to $195 to $205 billion, up from $180 to $190 billion.

For scale, that is more than 8x NASA's entire annual budget, going to data centers and chips in a single year.

And management said 2027 will be higher still.

Here is the line nobody put on a highlight card.

Google's finance chief told analysts the company will lean on third-party compute vendors (outside companies that rent out AI chips) to bridge a supply gap in the back half of the year.

Google cannot build capacity fast enough on its own.

Four of those outside companies jumped in after-hours the moment she said it:

Here's why that one sentence is bigger than the whole earnings report.

Google makes its own AI chips, its own AI model, and owns the cloud they run on.

It is the most self-sufficient company in the entire AI race. And last night it admitted it still has to rent.

That is the whole story.

Most companies rent compute because they don't make their own chips.

Google does make its own chips (they're called TPUs).

It also builds Gemini, the model with 950 million monthly users, and it runs one of the three biggest clouds on Earth.

If anyone could supply itself, it's Google.

So when Google says it has to borrow capacity anyway, it tells you the shortage is not about money or chip designs.

It's about physics.

New data centers wait years for a power connection, a bottleneck we covered in The AI Trade Nobody's Watching.

You cannot pour concrete or energize a gigawatt faster just because you have $200 billion to spend.

When demand runs past what even Google can build, it spills over to whoever already has powered chips sitting ready.

Those companies are the neoclouds: $CRWV ( ▼ 1.86% ), $NBIS ( ▲ 1.29% ), $IREN ( ▼ 1.7% ), and $WULF ( ▲ 2.87% )

They buy piles of Nvidia chips and rent them out by the hour.

Now the one company that was supposed to need no one has joined the line.

So what does this mean for your portfolio?

The neocloud trade just got its cleanest demand signal yet: a brand-new customer that everyone assumed would never need one.

Every hyperscaler renting instead of building is another quarter of guaranteed bookings for the picks-and-shovels names.

For two years the bull case for the neoclouds was a shortage nobody could see. Last night the biggest builder in the world pointed right at it.

Know someone holding the AI-infrastructure trade (CoreWeave, Nebius, the picks-and-shovels names)? Forward this to them →

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