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Alphabet Plans Massive Capex Increase as Cloud Revenue Growth Slows

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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.

 

ASML CEO Discusses Positive Impact of DeepSeek AI Launch on Chip Demand

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Christophe Fouquet, CEO of ASML, shared his perspective on the growing influence of AI technologies, such as China’s DeepSeek, on the global chip market. He emphasized that efficient AI models are ultimately a positive force for the semiconductor industry, countering the perception that AI spending is primarily driven by large-scale investments from tech giants like Google, Meta, and Microsoft. These companies are pouring billions into building advanced data centers, but according to Fouquet, the actual demand for chips driven by this sector remains relatively small.

Fouquet argued that the broader chip demand will come from the integration of AI into various consumer and industrial applications. He highlighted examples, such as AI-enabled phones, cars, and robotics, noting that for these products to reach mass adoption, the cost of the chips must be affordable. If the cost of chips remains high, only a small number of expensive units would be sold, limiting widespread access to AI technology.

When discussing the recent launch of DeepSeek’s AI product, which had a significant impact on tech stock prices, Fouquet remained optimistic, stating that anything that helps drive down costs is beneficial for ASML in the long run. While the potential of DeepSeek’s technology remains uncertain, he believes that cost reduction is key to enabling AI to be more accessible to a wider audience.

Analyst Sara Russo from Bernstein agreed with Fouquet’s viewpoint but noted that the effects of DeepSeek’s launch are still unfolding. She pointed out that ASML’s role as a supplier will depend on how AI applications evolve and influence chip demand, as well as the needs of chip manufacturers.

 

Google to Invest Over $1 Billion in AI Rival Anthropic

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Google has announced plans to invest more than $1 billion in Anthropic, an AI startup that competes with OpenAI in developing AI foundation models.

Key Points:

  • New Investment: Google is making a fresh investment of over $1 billion into Anthropic, following earlier reports in January that the company was nearing a $2 billion funding round. This new investment is separate from that round, which is led by Lightspeed Venture Partners and values Anthropic at around $60 billion.
  • Existing Investment: This new infusion of capital comes on top of Google’s previous $2 billion commitment to the AI startup. Amazon also increased its stake in Anthropic to $8 billion late last year, reflecting growing interest in the company.
  • Anthropic’s Growth: Anthropic has seen significant growth, with annualized revenue reaching approximately $875 million. The company sells access to its AI models both directly and through third-party cloud services like Amazon Web Services.
  • AI Arms Race: The move by Google comes amid an intensifying competition in the AI sector, particularly since the launch of OpenAI’s ChatGPT in November 2022. The rapid rise of OpenAI has sparked an AI arms race, with major players investing heavily in AI technologies.