Google parent Alphabet plans $75 billion capital expenditures this year, misses on cloud revenue

Alphabet said on Tuesday it will spend $75 billion on its AI buildout this year, 29 per cent more than Wall Street expected, while posting cloud revenue that missed analysts' target.

The tech giant's shares were down 9 per cent in extended trading. Alphabet has gained about 9 per cent so far this year.

CEO Sundar Pichai said the company expected to spend about $75 billion in capital expenditures for 2025.

Wall Street had been expecting 2025 capital expenditures of about $58 billion, according to LSEG data. That would mark a modest increase over the $52.5 billion spending in 2024. Alphabet has been spending heavily on an infrastructure buildout to support AI research and integration into products such as search and cloud services. But investors are growing cautious about costs and the possibility that search users would opt to use rival chatbots such as ChatGPT. The emergence of China's DeepSeek, which offers cut-rate AI, also has raised new questions about capital spending by Google and US rivals.

Digital advertising revenue, which represents about three-quarters of Alphabet's overall revenue, rose 10.6 per cent to $72.46 billion in the fourth quarter. That beat the third quarter's 10.4 per cent growth and topped analysts' estimates of $71.84 billion, according to LSEG. Ad revenue from YouTube grew 13.8 per cent to $10.47 billion in the fourth quarter, compared with the 12.2 per cent growth in the third quarter.

Chief business officer Philipp Schindler told analysts on a conference call that growth was helped by U.S. election advertising, with combined spending by Democrats and Republicans nearly doubling compared with the 2020 election.

Alphabet's mainstay ad business has been facing rising competition as more advertisers eye social media platforms such as Meta's Facebook and Instagram or ByteDance's TikTok. Google's ad tech technology and ad-driven search business are both facing scrutiny from US regulators seeking to break up the company.

Google's cloud business posted a 30 per cent rise in revenue to $11.96 billion in the fourth quarter, slowing down from the 35 per cent increase in the September quarter. Analysts were expecting a rise of 32.3 per cent to $12.16 billion, according to data compiled by LSEG.

The soft cloud numbers come even as Google has built out AI features within its cloud computing platform. Pichai said on the conference call that developer usage on its Gemini family of large language models had doubled in six months to 4.4 million users. Larger cloud rival Microsoft also reported weaker-than-expected growth in its Azure cloud platform last week. Shares of Amazon, the largest cloud provider, which will publish quarterly results on Thursday, were down 1.8 per cent in after-hours trade.

Google's revenue rose 12 per cent to $96.47 billion in the fourth quarter, compared with the average analyst estimate of $96.56 billion, according to data compiled by LSEG.

The company reported a profit of $2.15 per share, beating estimates of $2.13 per share. Search revenue rose 12.5 per cent to $54.03 billion. Investors have been concerned that users opting to use AI chatbots such as ChatGPT for searches could dampen that segment of Google's business in the coming quarters.

Pichai said that AI Overviews, the AI-generated summaries for search queries displayed above Google's traditional links to the Web, had increased search usage.

Self-driving car unit Waymo will debut internationally in Tokyo in the coming weeks, Pichai said.