Alphabet Disappoints: Shares Sink 7% After Revenue Below Expectations

The parent company of Google, Alphabet Inc., reported fourth-quarter revenues that missed analysts’ expectations after the growth of its cloud business slowed, raising concerns among investors about the billions the company is spending on artificial intelligence. Quarterly sales, excluding payments to partners, amounted to $81.6 billion, Alphabet announced on Tuesday in a statement. Analysts had forecasted $82.8 billion, according to data collected by Bloomberg. Shares fell by more than 9% in after-hours trading. Alphabet announced capital expenditures of $75 billion for 2025, which significantly exceeds analysts’ expectations of $57.9 billion. CEO Sundar Pichai stated during the earnings call that the investment “directly generates revenue” as it helps clients. Google’s cloud division is the clearest indicator of how the AI boom is contributing to the company’s sales. Startups are becoming clients as they need more computing power, but not as quickly as expected. Sales of around $12 billion for the period ending December 31 did not meet forecasts. Google Cloud still lags in size compared to Amazon.com Inc. and Microsoft Corp., and Pichai said Google needs to continue investing in cloud services to “ensure it can meet growing customer demand.” Alphabet fell to $187.12 in extended trading, after closing at $206.38. So far this year, shares have increased by 9%. Investors are urging Alphabet to demonstrate that it maintains momentum in its businesses while aggressively investing in AI, as competition in this market intensifies.

A Chinese AI startup, DeepSeek, surprised Silicon Valley last month when it announced it had created a powerful AI model at a fraction of the cost of its American competitors. During the earnings call, Pichai called DeepSeek “an exceptional team,” but added that Google’s models also outperform in efficiency. However, DeepSeek’s model is open-access, while Google requires payment, raising concerns that its advantages in AI and search may “significantly erode” this year, said eMarketer analyst Evelyn Mitchell-Wolf in an email. Dan Morgan, senior portfolio manager at Synovus Trust, added that the tech giant is under increasing pressure to show how its AI investments are translating into real business results. Morgan said the greatest return from the AI boom may not go to companies like Google, which develop the models, but to those that produce chips. “You don’t want to be the people digging for gold,” he said. “You want to be the one selling them the pickaxes.” Alphabet’s planned expansion of data centers and AI infrastructure led to a more than 6% rise in shares of Broadcom Inc. in after-hours trading. For the quarter, net profit was $2.15 per share, compared to the expected $2.13 from Wall Street.

Revenue by Segments:
Search advertising revenues amounted to $54 billion, slightly surpassing analysts’ expectations. Google has long dominated this market, which is now threatened by both AI competitors and antitrust investigations.

In August, a US judge ruled that Google monopolized the search market through illegal deals. The Department of Justice and a group of states also claim that Google violated antitrust laws through its ad-buying technology, harming publishers and advertisers. Key hearings on both cases are expected in 2025. YouTube reported revenues of $10.5 billion, surpassing forecasts of $10.2 billion. During the earnings call, Chief Business Officer Philipp Schindler stated that YouTube’s early investment in podcasts, which gained popularity during the US elections, contributed to the increase in ad spend from both parties.

Alphabet’s other bets, a collection of futuristic businesses that includes the Verily biosciences unit and the self-driving car initiative Waymo, generated $400 million in revenue, missing forecasts of $592 million. Alphabet is aggressively expanding Waymo, recently announcing plans to test in 10 new cities in 2025. However, other units are under pressure to spin off as independent startups. During the conference call on Tuesday, Pichai said Waymo is now averaging 150,000 trips per week and will soon take its first “international trip” to Tokyo. The company is working on a new version of Waymo’s driving technology that will reduce hardware costs, Pichai added.