Google Parent Alphabet Misses Revenue Estimates Amid AI Spending Concerns

In its fourth-quarter earnings report, Google parent company Alphabet Inc. (GOOG) reported revenue that fell short of analysts' expectations. The decline in growth for its cloud business raised concerns among investors regarding the company's substantial investments in artificial intelligence (AI).

Revenue and Earnings

Quarterly sales, excluding partner payouts, reached $81.6 billion, below the projected $82.8 billion estimated by analysts. Alphabet's shares experienced a drop of over 9% in after-hours trading.

Despite reporting earnings per share of $2.15, surpassing the estimated $2.13, the miss in revenue overshadows the earnings performance.

Cloud Business Challenges

Google's cloud unit, which provides computing power for startups, missed revenue targets of $12 billion during the period ending December 31st. This shortfall indicates a slowdown in growth compared to previous expectations.

Despite trailing behind Amazon and Microsoft in cloud market share, Alphabet CEO Sundar Pichai emphasized the need for continued investment in the cloud to meet rising customer demand.

AI Spending and Competition

Alphabet announced a significant increase in capital expenditures for 2025 to $75 billion, surpassing analysts' expectations of $57.9 billion. The company maintains that these investments directly drive revenue through customer benefits.

However, the rise of Chinese AI startup DeepSeek and its cost-effective models have raised concerns about Google's potential loss of competitive advantage in AI and search.

Other Business Units

Search advertising remained a strong revenue generator, slightly outperforming estimates with $54 billion. YouTube exceeded expectations with revenue of $10.5 billion, driven by investments in podcasts and election-related advertising spending.

Alphabet's Other Bets segment, including ventures such as Verily and Waymo, missed revenue estimates with $400 million in revenue. Waymo continues to expand its operations and recently announced plans to test in new cities this year.

Investor Outlook

Investors urge Alphabet to demonstrate clear returns on its AI investments and maintain momentum across its businesses amid intensifying competition. The company faces challenges in balancing its AI aspirations with revenue growth and shareholder expectations.