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? Sundar Pichai (CEO): 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? Philipp Schindler (CRO): 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. null (Operator): 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? Sundar Pichai (CEO): 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. Philipp Schindler (CRO): 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. null (Operator): 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? Sundar Pichai (CEO): 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. null (Operator): 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? Sundar Pichai (CEO): 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. null (Operator): 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? Sundar Pichai (CEO): 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. Anat Ashkenazi (CFO): 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. null (Operator): 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? Philipp Schindler (CRO): 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. Sundar Pichai (CEO): 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. null (Operator): 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. Philipp Schindler (CRO): 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. Sundar Pichai (CEO): 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. null (Operator): 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. Anat Ashkenazi (CFO): 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. Sundar Pichai (CEO): 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. null (Operator): 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? Sundar Pichai (CEO): 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. James Friedland (Head of Investor Relations): 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. null (Operator): Thank you, everyone. This concludes today's conference call. Thank you for participating. You may now disconnect.