Alphabet's Cloud Growth Slows, Revenue Falls Short of Expectations
Alphabet Inc.'s (GOOG) shares declined in premarket trading on Wednesday after the company reported lower-than-expected revenue for the fourth quarter due to decelerated growth in its cloud segment.
Financial Performance:
* Quarterly sales excluding partner payouts: $81.6 billion (vs. $82.8 billion estimated)
* Net income: $2.15 per share (vs. $2.13 per share estimated)
Cloud Unit Lags:
* Sales in Google's cloud unit fell short of estimates, reaching $12 billion.
* The company attributed the slowdown to slower adoption by startups requiring computing power.
* Google trails behind Amazon.com Inc. and Microsoft Corp. in cloud market share.
AI Investments and Competition:
* Alphabet announced capital expenditures of $75 billion for 2025, exceeding analyst expectations.
* CEO Sundar Pichai emphasized the investments' revenue-driving impact for customers.
* Chinese AI startup DeepSeek's cost-effective model raised concerns about potential erosion of Google's AI advantages.
* Investors pressure Alphabet to demonstrate momentum and competitive edge in the intensifying AI market.
Unit-Specific Results:
* Search advertising: $54 billion (slightly above estimates)
* YouTube: $10.5 billion (exceeding estimates)
* Other Bets: $400 million (below estimates)
* Waymo: Plans to expand testing in 10 new cities and develop cost-optimized driving technology.
Investment Implications:
* Alphabet shares fell 7% in premarket trading.
* Analysts suggest that the richest returns from the AI boom may lie with chip manufacturers rather than AI developers.
* Investors closely watch Alphabet's ability to convert AI investments into tangible business outcomes.