Alphabet’s stock plummeted over 8% in after-hours trading following its fourth-quarter earnings report, as investors expressed concern over the company’s massive AI spending plans and slowing cloud growth. The Google parent company announced plans for approximately $75 billion in capital expenditures for 2025, significantly exceeding analyst expectations of $57.9 billion.
While Alphabet reported consolidated revenue of $96.5 billion for Q4, representing 12% growth, its Google Cloud unit fell short of expectations with $12.0 billion in revenue versus the anticipated $12.19 billion. The company did see bright spots, with YouTube advertising revenue reaching $10.47 billion (beating the $10.22 billion forecast) and Google advertising revenue totaling $72.46 billion (surpassing the $71.73 billion estimate).
CEO Sundar Pichai emphasized the company’s AI leadership, stating that Q4 was “a strong quarter driven by our leadership in AI and momentum across the business.” He highlighted that Alphabet is “building, testing, and launching products and models faster than ever” while making significant progress in compute efficiency.
The earnings report comes amid heightened scrutiny of Big Tech’s AI investments. Jesse Cohen, senior analyst at Investing.com, noted that investors are “demanding clearer timelines on when AI spending translates to earnings and sales growth, not just promises.” He suggested that rivals like Microsoft, with its OpenAI partnership, may be better positioned to convert AI investments into revenue.
The recent emergence of Chinese startup DeepSeek’s open-source AI model has added pressure to the narrative. DeepSeek claimed its model, which performs comparably to US alternatives, was developed for approximately $6 million—a fraction of Big Tech’s AI spending. This revelation triggered a selloff in tech stocks and raised questions about the efficiency of massive AI capital expenditures.
Analysts also highlighted competitive threats to Google’s search dominance. EMARKETER’s Evelyn Mitchell-Wolf warned that “2025 could be the year those advantages meaningfully erode as antitrust enforcement and open source AI models change the game,” citing competition from retailers, social networks, and AI-first challengers like ChatGPT and Perplexity.
Key Quotes
Q4 was a strong quarter driven by our leadership in AI and momentum across the business. We are building, testing, and launching products and models faster than ever, and making significant progress in compute and driving efficiencies.
Alphabet and Google CEO Sundar Pichai made this statement in the earnings release, attempting to reassure investors about the company’s AI strategy despite the market’s negative reaction to increased spending.
Investors are demanding clearer timelines on when AI spending translates to earnings and sales growth, not just promises.
Jesse Cohen, senior analyst at Investing.com, explained the market’s skeptical reaction to Alphabet’s earnings, highlighting that investors want concrete returns rather than continued investment promises, especially as rivals like Microsoft appear better positioned to monetize AI.
I think part of the reason we are so excited about the AI opportunity is we know we can drive extraordinary use cases, because the cost of actually using it is going to keep coming down, which will make more use cases feasible.
Pichai responded to questions about DeepSeek’s cost-efficient model by emphasizing that declining AI costs will expand the opportunity space, attempting to reframe the efficiency narrative in Alphabet’s favor.
2025 could be the year those advantages meaningfully erode as antitrust enforcement and open source AI models change the game.
EMARKETER senior analyst Evelyn Mitchell-Wolf warned about threats to Google’s search dominance, noting that while the company maintained its commanding market share in Q4, multiple forces are converging that could undermine its competitive position.
Our Take
Alphabet’s earnings reveal a fundamental tension in the AI industry: the disconnect between massive capital investments and demonstrable returns. The company’s $75 billion capex forecast represents a bold bet that scale and infrastructure will determine AI winners, but DeepSeek’s emergence suggests that innovation and efficiency may matter more than raw spending power.
What’s particularly striking is the market’s shift from AI enthusiasm to AI skepticism. Just months ago, aggressive AI investment was celebrated; now it’s being punished unless accompanied by clear monetization pathways. This suggests we’re entering a new phase of AI maturity where execution and profitability matter more than promises.
The real risk for Alphabet isn’t just cloud competition—it’s that AI-powered search alternatives could erode its advertising cash cow before its AI investments pay off. The company is essentially racing to disrupt itself before competitors do, a precarious position that explains investor anxiety despite strong overall revenue growth.
Why This Matters
This earnings report represents a critical inflection point for Big Tech’s AI investment strategy. Alphabet’s massive $75 billion capex forecast—nearly 30% above analyst expectations—signals an escalating AI arms race among tech giants, yet the market’s negative reaction reveals growing investor skepticism about returns on these investments.
The DeepSeek disruption fundamentally challenges the prevailing narrative that AI leadership requires tens of billions in infrastructure spending. If comparable AI models can be developed for a fraction of the cost, it raises serious questions about capital efficiency and competitive moats in the AI industry.
For the broader tech ecosystem, this matters because Alphabet’s experience may foreshadow similar investor pressure on Microsoft, Amazon, and Meta as they justify their own massive AI expenditures. The market is clearly shifting from rewarding AI investment announcements to demanding concrete evidence of revenue generation and profitability.
Additionally, the competitive threats to Google Search from AI-powered alternatives represent a potential existential challenge to Alphabet’s core business model, which has funded its AI ambitions. The convergence of antitrust enforcement, open-source AI models, and new AI-first search competitors could fundamentally reshape the search market in 2025.
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Source: https://www.businessinsider.com/alphabet-to-spend-big-ai-capex-q4-earnings-2025-2