Alphabet’s $75 billion AI bet spooks investors as cloud growth slows

Will Google’s gamble pay off?

Image:
Shares fell after Alphabet committed almost $20 billion more to AI than investors expected

Alphabet is pouring $75 billion into artificial intelligence infrastructure this year, but investors are seemingly unconvinced.

Shares of Google’s parent company tumbled 9% in after-hours trading after a mixed fourth-quarter earnings report on Tuesday left investors questioning whether the spending spree would pay off.

The bulk of the money will go into servers and datacentres, with up to $18 billion allocated for the first quarter alone.

CEO Sundar Pichai insists the investment is necessary to keep Alphabet competitive in the AI arms race:

"The opportunity space is as big as it comes, and that's why you're seeing us invest to meet that moment," he said. The CEO also pointed out that AI costs will eventually come down and, over time, make more applications feasible.

Wall Street, however, had been expecting a far lower capex figure of around $58 billion. The surprise increase comes amid growing concerns over efficiency, especially after China’s DeepSeek showed it could train advanced AI models at a fraction of the cost. That revelation rattled tech stocks last month and caused Nvidia’s historic $593 billion market cap loss in a single day.

Beyond AI, Alphabet’s latest earnings report was a mixed bag. The company beat profit expectations with $2.15 per share and net income of $26.5 billion in Q4, but revenue slightly missed projections, coming in at $96.47 billion instead of the expected $96.56 billion.

For the full year, Alphabet posted net income of $100.1 billion (up 35.6% YoY) on revenue of $350 billion (up 14% YoY).

The Google Cloud segment posted 30% revenue growth, down from 35% in the previous quarter, raising concerns that its expansion is slowing just as competition heats up

Digital advertising remains Alphabet’s lifeline, with a 10.6% jump in ad revenue. Google’s Senior Vice President, Chief Business Officer Philipp Schindler credits this to US election spending.

YouTube ads climbed 13.8% to beat last quarter’s 12.2% growth. But with social media rivals like Meta and TikTok attracting more ad dollars, Alphabet remains under pressure to prove its AI-heavy strategy will deliver long-term gains.

Social commitments go the way of "Don’t be evil”

Seven years after infamously removing “Don’t be evil” from its Code of Conduct, Google this week has also removed two important social commitments.

First, the company has joined other tech giants in making the most of Donald Trump’s rubbishing of diversity policies, ending all DEI hiring targets.

A leaked memo from head of HR Fiona Cicconi pointed to Google’s status as a federal contractor for the reason behind the change:

“Because we are a federal contractor, our teams are also evaluating changes to our programs required to comply with recent court decisions and U.S. Executive Orders on this topic.”

The company says it is still committed to creating “an environment where everyone can thrive,” and its record does speak reasonably well to that fact. In the wake of the Black Lives Matter protests, for example, it boosted minority representation in its leadership teams to 30%.

Still, when it comes hand-in-hand with Google’s removal of AI use in weapons, the company’s scrapping of DEI targets looks deliberately political.