The Class A and Class C shares of Alphabet Inc. GOOG GOOGL plunged 7.10 % and 6.9% respectively in pre-market hours trading on Wednesday following the company’s fourth-quarter earnings announcement on Feb. 5.
What Happened: Despite reporting revenue growth, Alphabet’s cloud revenue fell short of market expectations, while AI spending saw a significant increase.
Alphabet, Google’s parent company, announced a 12% year-over-year rise in consolidated revenue, reaching $96.5 billion, fueled by strong business growth. Revenue from Google Services climbed 10% to $84.1 billion, led by sustained strength in Google Search, YouTube ads, and other advertising segments.
However, Alphabet’s cloud computing division, reported a 30% year-over-year (YoY) growth reaching $11.96 billion, falling short of market expectations of $12.19 billion. CFO Anat Ashkenazi cited capacity limitations as the reason for the lower-than-anticipated performance in cloud-based AI services.
Alphabet also revealed plans to invest $75 billion in capital expenditures in 2025, marking a 29% increase over analyst projections, mainly to enhance its artificial intelligence (AI) infrastructure. This announcement sparked investor concerns, especially given the rise of cost-efficient AI models from China’s DeepSeek.
CEO, Sundar Pichai justified the rise in spending, emphasizing that Alphabet must expand its AI capabilities to stay competitive. Alphabet’s AI-powered search features have been achieving monetization rates comparable to traditional search results, marking a milestone in the company's AI strategy. Pichai also hinted at potential future monetization strategies for Gemini AI, including the introduction of ads.
Despite the progress made by China's DeepSeek, CEO Sundar Pichai stated that Google's Gemini remains ahead in efficiency, cost, and performance.
Why It Matters: The results suggest that Alphabet is still encountering challenges, particularly in its Google Cloud segment, a central part of its growth strategy. This includes growing competition in the cloud services market from rivals such as Microsoft MSFT and Amazon AMZN. The company also continues to face regulatory scrutiny in the U.S. and China, further raising investor concerns.
During the past 12 months, GOOG has surged over 44% on the back of overall investor confidence.
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