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Every week, Roula Khalaf, the Financial Times’ Editor, handpicks the stories she finds most intriguing and shares them through this newsletter.
Recent Developments with Alphabet
Investors were rattled when Alphabet, Google’s parent company, reported a significant decline in its stock after revealing slower growth in its cloud business and announcing plans to invest $75 billion this year to support artificial intelligence products. These factors led to a sharp drop in Alphabet shares.
On Tuesday evening, Alphabet revealed substantial increases in fourth-quarter revenue and profit, largely driven by its advertising segment. Yet, investor attention was drawn to the underwhelming performance of its cloud division, responsible for managing Google’s data centers.
Despite the cloud sector reporting a 30% rise in revenue to nearly $12 billion, this growth rate was below the previous quarter’s 35% and fell short of analysts’ expectations of $12.2 billion. Anat Ashkenazi, Chief Financial Officer, attributed this to a mismatch between demand and available capacity.
The extent of Google’s investment in AI-related infrastructure caught the market by surprise. Capital expenditures for the fourth quarter surged to $14.3 billion, surpassing last year’s $11 billion and exceeding the anticipated $13.2 billion.
Sundar Pichai, Google’s CEO, emphasized that spending on data centers and servers would accelerate to $75 billion this year, a significant increase from $53 billion projected for 2024, exceeding Wall Street’s estimates by a third.
“The costs of AI utilization are decreasing, paving the way for more groundbreaking applications,” stated Pichai, who denied that the spending was wasteful. “This represents a massive opportunity, and we are investing aggressively to seize it.”
Following this news, Alphabet’s share prices plummeted by up to 8% in after-hours trading, setting up for what could be one of its worst trading days in a decade, erasing about $200 billion from its market value. Nevertheless, the stock had seen a 45% increase over the past year, placing its valuation at $2.5 trillion, trailing only behind Apple, Microsoft, Nvidia, and Amazon.
This downturn at Google mirrored Microsoft’s fortunes from the previous week when it similarly lost $200 billion in market value after falling short of cloud growth projections and announcing $80 billion in AI spending for the fiscal year ending June 30. On the same day, Meta CEO Mark Zuckerberg pledged to invest “hundreds of billions” to remain at the forefront of AI research.
The reactions from the market reflect wider apprehensions regarding expenditure by U.S. companies operating extensive data centers, powered by cutting-edge chips purportedly essential for developing and maintaining AI’s large-language models.
Adding to Alphabet’s woes were concerns raised by a new model from Chinese start-up DeepSeek. It claimed to match U.S. AI leaders like Google’s Gemini, OpenAI’s ChatGPT, and Anthropic’s Claude with far fewer advanced Nvidia chips, igniting doubts last month.
Pichai acknowledged DeepSeek’s “tremendous team” and their capability to optimize efficiency in AI model management.
He also handled questions from analysts about whether Gemini and its competitors are undermining Google’s core search business. As users increasingly turn to chatbots for information, this could reduce dependency on advertisement-driven revenue, which funds Google’s free services.
There is little to suggest challenges to Google’s dominant position in search. Revenue from search-linked ads rose by 13% to $54 billion in the quarter, surpassing expectations and boosted by consistent ad growth on YouTube.
Overall, group revenues climbed 12% to $96.5 billion in the fourth quarter compared to the same period last year. When excluding costs related to traffic acquisition paid to advertising and device partners, this figure was $81.6 billion, shy of the $82.8 billion expected in a Bloomberg survey. Net income surged 28% to reach $26.5 billion.
Beyond financial hurdles, Google faces scrutiny from global regulators. The company risks a breakup after losing a major antitrust lawsuit led by the U.S. Department of Justice, which found its search activities to be monopolistic.
In a related development, China has resumed antitrust examinations into Google’s Android operating system, conducting a raid on its Beijing office. This move is seen as a potential strategy in ongoing tariff discussions with U.S. President Donald Trump.
