Alphabet Stock Falls 7% Pre-Market Amid Higher CapEx Plans and Cloud Revenue Miss

Alphabet shares dropped 7% in pre-market trading after the company announced plans for significantly higher capital expenditures in 2025 and reported weaker-than-expected cloud revenue. The news heightened investor concerns over profitability at Google’s parent company.

Alphabet Plans to Boost Spending Beyond Analyst Expectations

Alphabet revealed that capital expenditures will soar to $75 billion in 2025—far exceeding analyst estimates of $58 billion and last year’s $52.5 billion. The aggressive investment plan has intensified scrutiny over Big Tech’s AI spending, especially following the emergence of DeepSeek, a Chinese AI startup that claims to have developed a competitive model at a fraction of the cost.

DeepSeek's AI model, which reportedly delivers performance on par with OpenAI’s ChatGPT while using less-advanced chips, has fueled industry discussions on the sustainability and profitability of massive AI investments. Alphabet plans to allocate between $16 billion and $18 billion in AI-related capital spending for Q1 2025 alone—vastly surpassing the $6 million DeepSeek spent to develop its model.

Despite this, Alphabet CEO Sundar Pichai acknowledged DeepSeek’s achievements, calling their work “very, very good,” but emphasized that Google’s Gemini AI models offer comparable efficiency.

AI Investment Strategy and Cloud Growth Slowdown

During the post-earnings call, Pichai defended Alphabet’s AI spending strategy, stating that technological costs will “continue to decline” and ultimately enable “more feasible use cases.” Integrating AI into core services like search and cloud computing remains a key driver behind Alphabet’s investment decisions.

However, slowing revenue growth in the cloud division has raised investor concerns. For Q4 2024, Alphabet’s cloud business grew by 30% to $11.96 billion—down from 35% in the previous quarter and below analyst forecasts of 32.3% ($12.16 billion), according to LSEG data reported by Reuters.

Alphabet’s Q4 Earnings Miss Wall Street Expectations

For the fourth quarter ending December 31, Alphabet reported total revenue of $96.47 billion, slightly missing Wall Street’s projected $96.69 billion. Earnings per share (EPS) came in at $2.15, surpassing analyst expectations of $2.12.

With concerns growing over Alphabet’s high AI spending and the deceleration of its cloud business, investors will be closely monitoring how these investments translate into long-term growth and profitability.

(Sources: investing.com, reuters.com, ChatGPT)