Alphabet plans big capex hike, cloud revenue growth slows
Alphabet recently announced that it will be investing $75 billion in its AI buildout for the current year. This amount is significantly higher than what Wall Street had anticipated, with a 29% increase. Despite this big investment, there was a sense of disappointment among investors due to a missed cloud revenue target, leading to concerns about profitability. Consequently, Alphabet's stock dropped by 9% during extended trading on Wall Street.
Investment Expectations
Previously, analysts were projecting a capital expenditure of around $58 billion for 2025. This figure would have represented a slight rise from the $52.5 billion spent in 2024. However, Alphabet's CEO, Sundar Pichai, defended the substantial increase in spending during a conference call with analysts. The surge in capital expenditure was justified in light of Google's efforts to keep pace with emerging technologies, such as the low-cost AI offered by China's DeepSeek.
Cloud Revenue Growth
Alphabet has been heavily investing in building infrastructure to bolster its AI research and integrate it into products like search and cloud services. The company's CFO, Anat Ashkenazi, outlined that a significant portion of the capital expenditure for 2025 would be allocated to constructing servers and data centers. She noted that the fourth-quarter results were partially impacted by capacity constraints related to cloud AI offerings.
Cloud Revenue Performance
Although Google's cloud business exhibited a 30% revenue increase to $11.96 billion in the fourth quarter, the growth rate decelerated from the preceding quarter's 35%. This slower growth was contrary to analysts' expectations of a 32.3% rise to $12.16 billion. Despite introducing AI features within its cloud computing platform, Google witnessed a slowdown in cloud revenue growth.
Advertising Revenue and Market Competition
Alphabet's advertising business, which constitutes a significant portion of its revenue, faced mounting competition from social media platforms like Meta's Facebook, Instagram, and TikTok. However, the company reported a 10.6% increase in advertising revenue to $72.46 billion in the fourth quarter, surpassing analysts' estimates.
Conclusion
In conclusion, Alphabet's substantial increase in capital expenditure is aimed at bolstering its AI capabilities and infrastructure. While the company faces challenges in cloud revenue growth, it continues to innovate and invest in emerging technologies. With the evolving landscape of the tech industry, Alphabet remains focused on maintaining its competitive edge and meeting the demands of the market.
For more information, you can refer to the original article by Reuters.
