Alphabet (GOOGL.O) announced plans to spend $75 billion on its AI infrastructure in 2025, a 29% increase over Wall Street’s expectations. This announcement led to a 9% drop in Alphabet’s stock in after-hours trading as investors expressed disappointment with the company’s missed cloud revenue target and growing concerns over its profitability.
Alphabet’s planned capex for 2025 exceeds analysts’ expectations of $58 billion and marks a dramatic increase from the $52.5 billion spent in 2024. CEO Sundar Pichai defended this surge in investment, citing the enormous potential of the AI space and promising that the cost of AI technology would continue to decrease, making it more accessible. Despite this optimism, Alphabet reported a slowdown in its cloud revenue growth, which failed to meet projections.
The company’s cloud business saw a 30% rise in revenue, reaching $11.96 billion for the fourth quarter. However, this was a deceleration from the 35% growth in the previous quarter and missed the expected $12.16 billion. Pichai emphasized that the Gemini family of AI models would drive further growth within the cloud platform, noting that developer usage of Gemini had doubled in the last six months.
Alphabet’s capital spending is primarily focused on building servers and data centers to support its AI initiatives. The company’s cloud segment has faced heightened competition, especially from rivals like Microsoft and Amazon, with the latter set to release its quarterly results soon.
Meanwhile, Alphabet’s core advertising business, which represents around 75% of total revenue, showed positive performance, with ad revenue growing 10.6% to $72.46 billion in the fourth quarter. YouTube contributed significantly to this growth, with ad revenue increasing by 13.8%.
Alphabet’s overall revenue for the quarter rose 12% to $96.47 billion, surpassing analyst expectations, while profits came in at $2.15 per share, above the forecasted $2.13 per share.
