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Alphabet Faces Investor Scrutiny Over AI Spending Amid Slowing Cloud Growth

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Alphabet is set to report earnings on Tuesday, with investors closely watching its substantial AI investments as revenue growth slows due to weaker advertising and cloud performance. The Google parent’s capital expenditure for 2024 is estimated at $50 billion, with further increases expected in 2025 to support cloud expansion and AI-driven search enhancements.

The rise of low-cost AI models, such as those from Chinese startup DeepSeek, has intensified concerns over a potential AI price war. Alphabet, like Microsoft and Meta, is defending its high AI spending, arguing it is necessary to maintain a competitive edge.

Google Cloud, a key growth driver, is anticipated to show a slowdown in the fourth quarter. The segment is expected to report a 32% revenue increase, compared to 35% in the previous quarter. This performance will be scrutinized following Microsoft’s recent results, where Azure’s core cloud services underperformed despite AI-driven gains. Analysts are keen to see whether Google experiences a similar trend.

Alphabet’s Search and Other revenue is projected to have grown 11.2% in Q4, slightly lower than the 12.2% increase in Q3. The company continues to face rising competition from Amazon and TikTok in the digital ad space. However, higher political ad spending linked to the upcoming U.S. Presidential elections may have provided a temporary boost.

Overall, Alphabet’s revenue is estimated to have grown 11.9% year-over-year to $96.6 billion, reflecting a slowdown from the previous quarter. Despite a 7% rise in its stock price this year, concerns about a potential deceleration in its cloud segment have mounted, especially after Microsoft’s disappointing cloud results.

Investors will be closely watching Alphabet’s ability to balance AI investments with profitability, as well as its strategy to maintain leadership in both the search and cloud computing markets.

 

Palantir Warns Against DeepSeek AI, Projects Strong 2025 Revenue

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Palantir has advised its clients, particularly those in the U.S. government, against using AI models developed by Chinese startup DeepSeek, citing security concerns. Chief Revenue Officer Ryan Taylor stated that no U.S. government entity would be able to use DeepSeek’s technology. His comments follow reports that federal agencies, including NASA, have banned the use of DeepSeek’s AI.

Despite these concerns, Palantir reported strong financial projections, forecasting first-quarter and full-year revenue above Wall Street expectations. The company expects 2025 revenue to range between $3.74 billion and $3.76 billion, surpassing analysts’ estimates of $3.52 billion. This optimistic outlook drove Palantir’s stock up 22% in extended trading.

More than 40% of Palantir’s fourth-quarter sales came from the U.S. government, reflecting its deep ties to federal agencies. Analyst Gil Luria noted that Palantir’s strategic vision aligns well with current government priorities. However, the company is actively expanding its commercial sector presence, projecting a 54% increase in U.S. business revenue to over $1.8 billion in 2025.

Palantir’s AI platform, AIP, has gained traction as businesses seek to deploy generative AI for testing, debugging, and scenario analysis. Additionally, Taylor suggested that the expanded tariffs announced by former President Trump could boost demand for Palantir’s supply-chain and logistics analytics.

For the fourth quarter, Palantir reported adjusted earnings of 14 cents per share, beating analysts’ expectations of 11 cents. It also forecast first-quarter revenue between $858 million and $862 million, well above the estimated $799.4 million.

 

Mitsubishi Heavy Sees Strong Gas Turbine Demand Despite AI Advances

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Mitsubishi Heavy Industries (MHI) expects continued strong demand for gas turbines, even if data centers require less electricity due to more efficient AI models such as China’s DeepSeek. Chief Financial Officer Hisato Kozawa stated that while DeepSeek’s performance remains unproven, it does not alter the broader trend of rising global power consumption.

Kozawa also noted that last week’s market sell-off, driven by DeepSeek’s emergence, led to MHI being traded as an AI-related stock for the first time, a development he found notable.

On Tuesday, MHI reported record third-quarter earnings and raised its annual profit forecast for the financial year ending in March. The company now expects a net profit of 240 billion yen ($1.55 billion), an increase of over 8% from its previous guidance, driven by strong gas turbine sales for power plants.

MHI’s stock has more than doubled in the past year, supported by growing demand for jets, naval ships, and missiles amid Japan’s defense expansion. However, its shares closed at 2,218 yen on Tuesday, down 0.6% from the previous day, while the Nikkei 225 index rose by 0.7%.