- Google parent Alphabet avoided tariff talk on its earnings call
- But the company's cloud growth could continue to be constrained by capacity if tariffs impact its chip purchasing power
- Google could up its capex plans or potentially move manufacturing of its TPUs stateside as a mitigation play
It’s wild to think that Alphabet executives made it through their Q1 2025 earnings call this week without talking about tariffs. But ignoring the problem won’t make it go away. And trust us, tariffs are a problem for Google.
During the earnings call, Alphabet and Google CFO Anat Ashkenazi made two key statements.
First, Google’s cloud division is still up against a “tight demand/supply environment.” Since revenues are tied to the deployment of new capacity, that means cloud revenue growth rates could fluctuate throughout the year depending on how much new compute the company is able to bring online each quarter.
Second, Ashkenazi reiterated the company plans to spend $75 billion on capex this year, with that money primarily going toward servers and data center infrastructure. She added $17.2 billion of that already went out the door in Q1.
The fly in Google’s cloud ointment
There’s just one hitch in Google’s plan. Given tariffs are widely expected to increase the cost of chips and components, that means the $75 billion Google originally allocated to boost capacity probably won’t go as far as it originally planned.
And no, it can’t skirt the issue by using its own TPUs – though the company declined to confirm when Fierce asked during Google Cloud Next – Moor Insights and Strategy VP and Principal Analyst Matt Kimball noted its chips are likely built by TSMC in Taiwan. AvidThink’s Roy Chua agreed.
That, of course, would mean the kit Google needs to buy will likely be subject to tariffs (depending on whether short-term exemptions are extended or not). The question then becomes who pays for tariffs, Google or the suppliers?
“Nevertheless, any tariffs beyond the previous levels will reduce the impact of their $75B commitment (in addition to any exchange rate impact),” Chua told Fierce.
Could Google shift strategy?
U.S. President Donald Trump recently announced a 90-day pause on tariffs with pretty much all trading partners except China to give the administration time to cut deals with other countries. Dell’Oro Group Senior Research Director Baron Fung said if the tariffs do end up going into effect, “I think costs have to go up at some point.”
There are, he said, two ways to address that. One is to cut spending on non-essential line items – think upgrades of existing equipment. The other? Increase capex.
“From what we have seen in the past, for example during the component shortages of 2021-2022, the hyperscalers have a tendency to raise their capex levels because of higher prices,” he noted.
Fung added the current tariff pause gives “cloud providers time to shift their inventories strategically or pull in the deliveries.”
We’re spitballing here, but in terms of other options, Google Cloud could theoretically pull a Nvidia or AMD and bring some of its chip manufacturing to TSMC’s U.S. facilities. But that raises the question of how quickly it can do so. We asked the company about this potential play and will update if we hear back.
To be clear, this problem isn't one that is unique to Google. We'll be waiting to see if Amazon, Microsoft and the like address it on their respective earnings calls.