Alphabet Is Planning To Spend Big On Ai Again This Year, Sending Shares Down

Sundar Pichai speaks during a Google I/O conference.

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• Google's parent company, Alphabet, reported fourth-quarter earnings on Tuesday.
• The tech giant missed on cloud revenue and plans about $75 billion in capex this year.
• Alphabet continues to bet heavily on AI despite industry disruption from China's DeepSeek.

Slowing growth in Alphabet's cloud business and a bigger-than-expected capex forecast for 2025 dragged shares down more than 8% in postmarket trading.

The Google parent company, which reported fourth-quarter results on Tuesday, said consolidated revenue rose 12% in the period to $96.5 billion. Its key Google Cloud unit's sales fell slightly short of expectations, however.

Alphabet said it plans about $75 billion in capital expenditures this year. Analysts surveyed by Bloomberg had expected $57.9 billion. Big Tech companies have been increasingly under scrutiny for their heavy investments in artificial intelligence.

Jesse Cohen, senior analyst at Investing.com, said investors are "demanding clearer timelines on when AI spending translates to earnings and sales growth, not just promises," adding that Alphabet's stock dip following the earnings report "underscores concerns that rivals like Microsoft, with its OpenAI partnership, are better positioned to convert AI hype into revenue."

"Q4 was a strong quarter driven by our leadership in AI and momentum across the business," Alphabet and Google CEO Sundar Pichai said in the earnings release. "We are building, testing, and launching products and models faster than ever, and making significant progress in compute and driving efficiencies."

Here are the key numbers for the fourth quarter compared to analysts' estimates compiled by Bloomberg:

• Earnings per share: $2.15 vs. $2.13 expected
• Revenue: $96.5 billion vs. $96.62 billion expected
• Google advertising revenue: $72.46 billion vs. $71.73 billion
• YouTube advertising revenue: $10.47 billion vs. $10.22 billion expected
• Google Cloud revenue: $12.0 billion vs. $12.19 billion expected

EMARKETER senior analyst Evelyn Mitchell-Wolf said successes in YouTube's performance and Google Search in Q4 stood out, adding that "Google has so far been able to maintain its commanding share of the search market despite escalating competition from retailers, social networks, and AI-first challengers like ChatGPT and Perplexity."

However, "Google's advantages in search hinge on its ubiquity and entrenched consumer behavior. 2025 could be the year those advantages meaningfully erode as antitrust enforcement and open source AI models change the game," Mitchell-Wolf said.

In late January, Chinese startup DeepSeek released its open-source AI model, which appeared to operate similarly well to US ones but which the company said was scaled for about $6 million — significantly less than the amount Big Tech companies have been investing in AI.

Tech stocks, including Alphabet's, took a hit in response. DeepSeek's market disruption was a frequent topic of conversation among tech leaders on earnings calls this week, including Pichai, who sought to assure investors that Google's AI offerings are more efficient and better optimized than those of its competitors.

"I think part of the reason we are so excited about the AI opportunity is we know we can drive extraordinary use cases, because the cost of actually using it is going to keep coming down, which will make more use cases feasible," Pichai said in response to a question about DeepSeek. "And that's the opportunity space. You know, it's as big as it comes, and that's why you're seeing us invest to meet that moment."

Cohen at Investing.com, said that "for Alphabet to reassure investors, it needs to demonstrate that its AI bets, from Gemini models to Workspace integrations, can reignite Cloud momentum while core advertising remains stable in an uncertain economy."