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What happens when you deliver solid earnings but surprise investors with a massive spending plan? Just ask Alphabet.
On Tuesday, Google’s parent company reported strong earnings, but instead of celebrating, investors went into panic mode. Why? Because Alphabet revealed it plans to spend a whopping $75 billion this year on AI infrastructure—29% more than Wall Street had expected. The market wasn’t thrilled. The stock tumbled 9% in extended trading, wiping out nearly $200 billion in market value.
The Numbers Looked Good… At First
On the surface, Alphabet had a decent quarter. Revenue grew 12% year-over-year to $96.5 billion, and net income jumped 28% to $26.5 billion. Digital advertising, which makes up nearly three-quarters of Alphabet’s revenue, grew 11%, with search-linked ad revenue rising 13% to $54 billion. Even YouTube had a solid quarter. But there was one major problem—cloud growth slowed down.
Google Cloud posted a 30% increase in revenue to nearly $12 billion. That might sound impressive, but the previous quarter saw 35% growth. Wall Street was expecting $12.2 billion, so the miss raised concerns. CFO Anat Ashkenazi blamed “capacity constraints,” meaning Google didn’t have enough infrastructure to meet demand. And that’s where the spending comes in.
AI Investments or AI Overkill?
Google is all-in on AI, and it’s putting its money where its mouth is. CEO Sundar Pichai defended the $75 billion spending spree, arguing that AI is the next big opportunity. Most of the capital will go into building data centers and servers, ensuring Google can keep up with the AI boom. But investors are starting to worry. Microsoft recently faced a similar backlash when it announced AI-related spending of $80 billion, and Meta’s Mark Zuckerberg has hinted at spending “hundreds of billions” in the long run. The market is getting nervous about whether all this spending will actually translate into profits.
Adding to the uncertainty is the rise of Chinese AI startup DeepSeek. The company developed a competitive AI model using far fewer Nvidia chips and significantly lower costs than US tech giants. That’s making investors question whether Google and its peers are overspending on AI.
Is Google Still a Safe Bet?
Despite the sell-off, Alphabet remains one of the cheapest stocks among the ‘Magnificent Seven.’ This company’s price-to-earnings ratio is 24.04, which is lower than that of other Magnificent 7 companies. And while AI costs are a concern, Google still has strong assets—YouTube, Waymo, and a potential $700 billion spin-off combining its custom AI chips with DeepMind.
That said, Google isn’t just facing investor worries. Regulators are circling too. The company recently lost a landmark antitrust case in the US, and China has reportedly reopened an investigation into Android’s dominance. With legal battles ahead and AI spending under scrutiny, Alphabet’s future looks promising—but far from smooth.
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