Finance
Alphabet plans massive capex hike, reports cloud revenue growth slowed
Published by Global Banking & Finance Review®
Posted on February 4, 2025
5 min readLast updated: January 26, 2026
Global Banking & Finance Review®
Company
Published by Global Banking & Finance Review®
Posted on February 4, 2025
5 min readLast updated: January 26, 2026
Alphabet plans a $75 billion AI capex hike, surpassing expectations, but reports slowed cloud revenue growth, raising profitability concerns.
By Kenrick Cai, Deborah Mary Sophia
(Reuters) -Alphabet said on Tuesday it will spend $75 billion on its AI buildout this year, 29% more than Wall Street expected, and investors signaled disappointment at a missed cloud revenue target and began showing impatience over profitability.
Shares of the Google parent fell 9% in extended trading. Alphabet has gained about 9% so far this year.
Wall Street had been expecting 2025 capital expenditures of about $58 billion, according to LSEG data. That would have marked a modest increase over the $52.5 billion spending in 2024.
CEO Sundar Pichai defended the dramatic increase on a conference call with analysts, who are raising new questions about capital spending by Google and U.S. rivals following the emergence of China's DeepSeek, which offers cut-rate AI. He said Google's Gemini family of AI models is comparable in efficiency to DeepSeek.
"The cost of actually using (AI) is going to keep coming down, which will make more use cases feasible," Pichai said. "The opportunity space is as big as it comes, and that's why you're seeing us invest to meet that moment." Still, the company posted a deceleration in cloud revenue growth.
Alphabet has been spending heavily on an infrastructure development to support AI research and integration into products such as search and cloud services. The majority of capex for 2025 would go into building servers and data centers, Chief Financial Officer Anat Ashkenazi said on the call. She attributed the fourth-quarter results in part to capacity constraints on cloud AI offerings.
Alphabet plans to spend $16 billion to $18 billion in the first quarter, a far bigger number than the roughly $6 million DeepSeek said it spent on the final training run to develop its AI model.
To be sure, developers at leading U.S. AI firms said the total training cost was likely magnitudes larger. But revelations around DeepSeek's training cost in January shocked tech stocks, contributing to Nvidia's record one-day drop of $593 billion in market value.
"It's very hard to defend Google after the earnings report," said Dave Wagner, portfolio manager at Aptus Capital Advisors, which holds Alphabet stock. He pointed to the cloud revenue miss and Google's poor track record on utilizing cash for profitability.
"DeepSeek has started to teach the market that maybe some things can be done a little bit more efficiently," he said. "Maybe we're starting to see the market dislike the continued increase in capex."
LEVELING OFF
Google Cloud had previously grown fast enough to offset concerns around increased spending, said Brian Mulberry, client portfolio manager at Zacks Investment Management, which holds Alphabet shares.
"When you start to see that revenue level off or at least the growth start to top off a little bit, how you're going to finance the future growth of the company becomes an issue," he said.
Google's cloud business posted a 30% rise in revenue to $11.96 billion in the fourth quarter, slowing down from the 35% increase in the September quarter. Analysts were expecting a rise of 32.3% 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 Gemini 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% in after-hours trade.
Alphabet's mainstay ad business, which represents about three-quarters of its overall revenue, has been facing rising competition as more advertisers eye social media platforms such as Meta's Facebook and Instagram or ByteDance's TikTok.
Advertising revenue rose 10.6% to $72.46 billion in the fourth quarter. That beat the third quarter's 10.4% growth and topped analysts' estimates of $71.84 billion, according to LSEG.
Ad revenue from YouTube grew 13.8% to $10.47 billion in the fourth quarter, compared with the 12.2% growth in the third quarter. Chief business officer Philipp Schindler said the growth was helped by U.S. election advertising, with combined spending by Democrats and Republicans nearly doubling compared with the 2020 election.
The ad tech products and ad-driven search business are both facing scrutiny from U.S. regulators seeking to break up the company, though policy may change under the Trump administration.
Overall, Google's revenue rose 12% 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% to $54.03 billion. 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.
The monetization rate on ads for AI Overviews, introduced last October, was approximately the same compared to traditional search ads, chief business officer Philipp Schindler said.
Self-driving car unit Waymo will debut internationally in Tokyo in the coming weeks, Pichai said.
(Reporting by Deborah Sophia in Bengaluru and Kenrick Cai in San Francisco; Editing by Shounak Dasgupta, Peter Henderson and Matthew Lewis)
The article discusses Alphabet's planned increase in AI capex and the slowdown in its cloud revenue growth.
Investors are concerned about Alphabet's profitability due to the missed cloud revenue target and increased spending.
Alphabet's AI spending is significantly higher than China's DeepSeek, which has raised efficiency questions.
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