Google disclosed today in its second-quarter SEC filing today that it expects to spend $700 million in 2005 on capital expenditures. This money is invested in new servers and networking gear, plus some in real estate. It doesn't include funds for acquiring other companies (which Google also said would consume "a significant amount of cash ... from time to time).

This $700 million figure is up 40% from their estimate just 4 months ago. Since Google has already spent $299 million in the first half of this year, they will spend that much again plus ramp up their rate of investment by 34% in the second half. Google is investing almost twice as much as Yahoo in this category, as Yahoo's capital expenditure in the first half of the year was $161 million.

Google must be anticipating either accelerating growth of current products, or (more likely) is investing in advance of launching new products. I read this as extremely positive news for Google, since their new product development must be ahead of plan, or traffic is increasing faster than anticipated, since Google has repeatedly raised its forecast.

I posted back in April that Google expected to spend a whopping $500 million in 2005 on new datacenters:

Google expects to spend $500 million this year, primarily to add new computer hardware. This is a gigantic number. To put it in perspective, it's more than Google spent in the last 2 years combined. And it's even more significant when you consider that hardware is at least twice as powerful now as it was two years ago.

Just this quarter, Google spent more on new computer hardware than it did in the last half of '04.

This kind of investment seems much too high just to keep up with the growth of existing services. And on today's conference call, Google execs hinted at their plans. They said they wouldn't be using their $2.5 billion cash balance (which is growing 15%-17% each quarter) to buy back shares. Instead, they have some "very interesting things to do with the cash over the next year or two." At another point, Larry Page said, "what we've done for the web, Google wants to do for television."

Then in May Google raised their estimate by 20%. And now in August they've raised it another $100 million. And a million bucks at Google can go a long way -- they're buying generic, bargain-basement PCs and running free open-source software.

It's funny -- just the change in Google's capex estimate ($200 million) is more that the total Yahoo spent in half a year ($161 million). And Yahoo's no slouch here, either. At this rate, it looks like Google is on track to outspend Yahoo by 2-to-1 this year.

Update Sept 25, 2005 5:33 PM: The title of this post is wrong. Google's capex is $700 million this year, not $700 billion. I haven't changed the title since it would mess up the links to the original post.