Alphabet surprised investors by announcing a $75 billion investment in AI development this year, exceeding expectations by 29%. While the market expressed disappointment over a missed cloud revenue target, Alphabet CEO Sundar Pichai defended the decision, emphasizing the importance of capitalizing on the vast opportunities in AI. The company’s focus on AI research and integration into products like search and cloud services has led to significant capital expenditures, with most of the funds allocated to building servers and data centers. Despite a slowdown in cloud revenue growth, Alphabet remains committed to innovation and expansion. The market response, influenced by emerging competitors like China’s DeepSeek, has raised questions about the company’s future profitability and capital spending strategies.
On Thursday, Amazon, the leading cloud provider, is set to release its quarterly results. In after-hours trading, Amazon’s shares were down by 1.8% last week. Meanwhile, Alphabet’s primary source of revenue, its advertising business, which makes up around three-quarters of its total revenue, is facing increased competition from social media platforms like Meta’s Facebook, Instagram, and ByteDance’s TikTok. In the fourth quarter, advertising revenue climbed by 10.6% to reach $72.46 billion, surpassing both the 10.4% growth in the previous quarter and analysts’ estimates of $71.84 billion, as reported by LSEG. Specifically, ad revenue from YouTube grew by 13.8% to $10.47 billion in the fourth quarter, a rise compared to the 12.2% growth seen in the third quarter. The surge was attributed to U.S. election advertising, with spending from both Democrats and Republicans nearly doubling compared to the 2020 election, according to Chief Business Officer Philipp Schindler. Despite this growth, Google’s ad tech products and ad-driven search business are under scrutiny from U.S. regulators, who are considering breaking up the company, although policies may shift under the Trump administration. Overall, Google’s revenue increased by 12% to $96.47 billion in the fourth quarter, slightly below the average analyst estimate of $96.56 billion, according to data from LSEG. The company reported a profit of $2.15 per share, surpassing the anticipated $2.13 per share. Search revenue also rose by 12.5% to $54.03 billion. Sundar Pichai mentioned that AI Overviews, AI-generated summaries for search queries displayed above Google’s traditional links, have boosted search usage. The monetization rate on ads for AI Overviews, introduced in October, was similar to that of traditional search ads, as noted by Chief Business Officer Philipp Schindler. In the upcoming weeks, Google’s self-driving car unit, Waymo, will launch internationally in Tokyo, confirmed Pichai. (Reporting by Deborah Sophia in Bengaluru and Kenrick Cai in San Francisco; Editing by Shounak Dasgupta, Peter Henderson, and Matthew Lewis)
