Alphabet Slides After Cloud Sales Fall Short of Expectations

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(Bloomberg) — Google parent Alphabet Inc. posted fourth-quarter revenue that missed analysts’ expectations after growth in its cloud business slowed, raising concern from investors about the billions the company is spending on artificial intelligence.

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Quarterly sales, excluding partner payouts, were $81.6 billion, Alphabet said Tuesday in a statement. Analysts had projected $82.8 billion, according to data compiled by Bloomberg. The shares fell more than 9% in after-hours trading.

Alphabet announced $75 billion in 2025 capital expenditures, far exceeding the $57.9 billion that analysts expected. The investment is “directly driving revenue” because it helps customers, Alphabet Chief Executive Officer Sundar Pichai said on the earnings call with investors.

Google’s cloud unit is so far the clearest indicator of how the AI boom is contributing to the company’s sales. Startups are becoming customers because they require more computing power for their work, but not as quickly as expected. Sales of about $12 billion in the period ended Dec. 31 missed estimates. Google Cloud still trails behind Amazon.com Inc. and Microsoft Corp. in size, and Pichai said Google needs to keep investing in cloud to “ensure we can address the increase in customer demand.”

Alphabet fell as low as $187.12 in extended trading, after closing at $206.38. The shares have gained 9% so far this year.

Investors have urged Alphabet to demonstrate that it is maintaining momentum across its businesses as it spends more heavily on AI, and as competition in that market intensifies. Chinese AI startup DeepSeek took Silicon Valley by surprise last month when it said it had created a powerful AI model at a fraction of the cost of US rivals. During the earnings call, Pichai called DeepSeek a “tremendous team” but said that Google’s models have also excelled in efficiency.

Still, DeepSeek’s model is open to use, and Google’s costs money, raising concerns that its advantages in AI and search could “meaningfully erode” this year, Emarketer senior analyst Evelyn Mitchell-Wolf said via email.

Dan Morgan, senior portfolio manager at Synovus Trust, added that the tech giant is now under increasing pressure to show how its investments in AI are translating to real business gains.

Morgan said the richest returns from the AI boom may come not to companies like Google that are pushing forward the models, but to the companies that specialize in chips. “You don’t want to be the people who are mining for gold,” he said. “You want to be the guy who sells them the picks.”

Alphabet’s planned buildout of data centers and infrastructure for artificial intelligence led to a more than 6% boost in Broadcom Inc. shares in after-hours trading.

In the quarter, net income was $2.15 per share, compared with Wall Street’s $2.13 per-share estimate.

Unit Results

Search advertising brought in $54 billion in sales, slightly beating analysts’ estimates. Google has long dominated the market, which is newly under threat by both AI competitors and antitrust challenges.

In August, a US judge ruled that Google monopolized the search market through illegal deals. The Justice Department and a group of states also allege that Google has violated antitrust law for the technology used to buy and sell website ads, harming publishers and advertisers in the process. Key proceedings in both cases are expected in 2025.

Video-streaming site YouTube reported $10.5 billion in revenue, exceeding analysts’ estimates of $10.2 billion. On the earnings call with investors, Chief Business Officer Philipp Schindler said an early investment by YouTube in podcasts, which were popular during the US election, and which drove an increase in ad spending by both parties, is paying off.

Alphabet’s Other Bets, a collection of futuristic businesses that includes the life sciences unit Verily and the self-driving car effort Waymo, generated $400 million in revenue, missing estimates for $592 million. Alphabet has been aggressively expanding Waymo, which recently announced plans to test in 10 new cities in 2025. But the other units have been pressured to spin off as independent startups.

During Tuesday’s call, Pichai said that Waymo is now averaging 150,000 trips per week, and will soon go on its first “international road trip” in Tokyo. The company is working on new version of Waymo’s driving technology that will trim hardware costs, Pichai added.

(Updates with CEO comments throughout)