Alphabet, Google’s parent company, is facing heightened scrutiny from investors due to its significant investments in artificial intelligence (AI) during a period of slowing growth in Google Cloud. In 2024, Alphabet’s capital expenditures reached around $50 billion, with expectations for further increases in 2025 to bolster cloud expansion and AI-enhanced search features.
This considerable spending has raised alarms among investors, particularly as revenue growth slowed during the holiday quarter, affected by declines in advertising and cloud services.
The competitive landscape has become more challenging with the rise of companies like DeepSeek, a China-based AI chatbot developer, which claims to provide more cost-effective and energy-efficient AI solutions than established platforms like ChatGPT.
This situation has led investors to closely observe how tech giants like Alphabet and Amazon will tackle the challenges associated with AI spending and cloud growth. Despite these worries, analysts remain optimistic about Alphabet’s stock. The company is projected to report fourth-quarter revenue of $96.6 billion, reflecting a 12% year-over-year increase, and earnings of $26.19 billion, or $2.12 per share, up from $20.69 billion, or $1.64 per share, the previous year.
Jefferies has kept a “buy” rating with a $235 price target, pointing to improving fundamentals and rising demand for Google Cloud. In light of investor concerns, Alphabet has been concentrating on enhancing efficiency. The company’s new CFO, Anat Ashkenazi, has pointed out potential improvements, such as utilizing internal AI tools to streamline operations without necessarily cutting jobs.
This strategy aims to simplify processes and enhance business operations, with 25% of new code at Google being AI-generated. As Alphabet gears up to announce its earnings, the balance between significant AI investments and the necessity for efficiency and profitability remains a key focus for investors.