Alphabet's $75B AI Bet A Game-Changer or a Gamble?

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Alphabet's $75B AI Bet A Game-Changer or a Gamble?

In a surprise move, Alphabet, the parent company of Google, has announced plans to spend a staggering $75 billion on its artificial intelligence (AI) build-out this year. This significant increase in capital expenditures (capex) has left investors questioning whether this massive bet on AI is a game-changer or a gamble.

The announcement sent shockwaves through the market, with shares of Alphabet falling 9% in extended trading. Despite being up about 9% so far this year, investors are showing signs of impatience over profitability and the company's ability to utilize its cash effectively.

Wall Street had been expecting capex of around $58 billion for 2025, a modest increase from the $52.5 billion spent in 2024. However, Alphabet's plans indicate a significant acceleration in spending, which has raised concerns about the company's financials and profitability.

During a conference call with analysts, CEO Sundar Pichai emphasized that Google's AI build-out is crucial to its future growth and competitiveness. He noted that the cost of using AI will continue to come down, making more use cases feasible.

Despite the increased spending, Alphabet reported a deceleration in cloud revenue growth, which has raised concerns about the company's ability to sustain its rapid pace of growth. The cloud business posted a 30% rise in revenue to $11.96 billion in the fourth quarter, slowing down from the 35% increase in the September quarter.

The increased spending is primarily focused on building servers and data centers to support AI research and integration into products such as search and cloud services. Chief Financial Officer Anat Ashkenazi attributed the fourth-quarter results in part to capacity constraints on cloud AI offerings.

While some analysts are optimistic about Alphabet's plans, others are expressing concerns about the company's ability to utilize its cash effectively. It's very hard to defend Google after the earnings report, said Dave Wagner, portfolio manager at Aptus Capital Advisors. He pointed to the cloud revenue miss and Google's poor track record on utilizing cash for profitability.

The emergence of China's DeepSeek, which offers cut-rate AI, has raised concerns about the competitive landscape in AI. While Alphabet is investing heavily in its own AI build-out, some analysts are questioning whether this level of spending is necessary to remain competitive.

Ultimately, only time will tell if Alphabet's massive bet on AI will pay off or not. However, one thing is certain – the company's plans for AI will have a significant impact on the tech industry and beyond.

Keywords Alphabet, Google, AI, Capex, Cloud Revenue, DeepSeek

Edward Lance Arellano Lorilla

CEO / Co-Founder

Enjoy the little things in life. For one day, you may look back and realize they were the big things. Many of life's failures are people who did not realize how close they were to success when they gave up.