Alphabet (GOOGL), the parent company of Google (GOOGL), is looking to spend a staggering $75 billion in 2025 to “accelerate” its A.I. progress, the company said in its fourth-quarter earnings report yesterday (Feb. 4). The figure represents an over 40 percent jump from last year’s A.I. spending and came as a shock to Wall Street, sending Alphabet shares to fall more than 8 percent today.
“This is a significant increase, and it shows that Alphabet is throwing the kitchen sink at its A.I. plans,” said Kathleen Brooks, research director at XTB, in an analyst note. What worries investors more is that Alphabet is spending money more quickly than making it. Alphabet’s Google Cloud revenue, which Brooks described as “the clearest way to see if Google is monetizing A.I.,” came in at $12 billion for the October-December quarter, up 30 percent from the same period in 2023 but lower than what analysts had expected.
Alphabet’s total quarterly revenue was $96.5 billion, up 12 percent from the year prior. Revenue from Google Services, including its core online search business, rose 10 percent to $84 billion, while revenue from Alphabet’s Other Bets division dropped 39 percent to $400 million.
When asked whether revenue could have been higher with more resources, Anat Ashkenazi, Alphabet’s chief financial officer, told analysts yesterday that the company “exited the year with more demand than we had available capacity.” This contributed to the decision to hike up capital expenditures, added Ashkenazi, with investments earmarked for servers, data centers and networking.
CEO Sundar Pichai assured investors that A.I. costs will eventually come down, making the initial investment justifiable. “Part of the reason we are so excited about the A.I. opportunity is we know we can drive extraordinary use cases because the cost of actually using it is going to keep coming down,” he said. “It’s as big as it comes, and that’s why you’re seeing us invest to meet that moment.”
Alphabet isn’t the only major tech company sprinting to flesh out its A.I. infrastructure. Microsoft (MSFT) plans to spend $80 billion on A.I. data centers throughout 2025, a notable hike from the $50 billion it spent in fiscal 2024. Meta (META)’s capital expenditures this year are expected to reach as high as $65 billion, compared to $39 billion last year. However, Alphabet is the only one suffering a stock selloff after announcing such plans. “Why does Google get hit on another year of heavy infrastructure investment while Meta’s 60%+ CapEx increase in 2025 is embraced by the Street?” asked Doug Anmuth, an analyst with JPMorgan, in a client note.
Alphabet is facing increasing pressure to deliver on its A.I. promises. In an analyst note, Josh Beck of Raymond James urged Alphabet to “spell out monetization potential” for its A.I.-generated search summaries, known as AI Overviews, and Gemini model use cases. On yesterday’s earnings call, Pichai teased that the company has “very good ideas for native ad concepts.” He also reiterated Google’s plan to offer free and paid subscriptions for Gemini products.
Big Tech’s large capital expenditures have also come under heat in light of DeepSeek, a Chinese A.I. firm that claims to be able to build powerful A.I. models using far fewer resources. Pichai praised DeepSeek’s “tremendous team” as having done “very, very good work” but added that Gemini’s reasoning models are on par with DeepSeek’s in terms of efficiency.