Alphabet, Google‘s parent company, saw a sharp decline in its stock price during pre-market trading on Wednesday, dropping 8 percent after releasing mixed fourth-quarter results that highlighted weaknesses in its cloud computing segment. This drop in shares comes as the company announced plans to increase its capital expenditure by 43 percent to $75 billion for 2025, a significant rise from $57.9 billion, underscoring its aggressive growth strategy amid ongoing challenges. The 43 percent rise follows a 63 percent increase in spending during 2024.
The earnings report emerges as Alphabet grapples with multiple external challenges. Recently, China initiated an antitrust investigation into Google, perceived as a reaction to President Trump’s 10 percent tariff on Chinese products. Additionally, the company is facing stiff competition from China-based DeepSeek’s AI models, which have drawn attention for their cost-effectiveness and advanced capabilities.
The tech giant reported earnings per share of $2.15, slightly exceeding analyst predictions of $2.13. Overall revenue totaled $96.4 billion, just below the expected $96.6 billion target, with the shortfall primarily attributed to underperformance in its cloud division. Google Cloud’s revenue reached $11.9 billion for the quarter, missing Wall Street’s forecast of $12.1 billion. This disappointment in cloud performance reflects similar challenges encountered by competitor Microsoft, which also reported cloud revenue that fell short of expectations, despite a 21 percent year-over-year growth.
“Google Cloud was positioned as Alphabet’s next big driver of growth, but the miss on cloud revenue has left Wall Street concerned about the company’s AI investments. Investors had hoped these expenditures would result in better-than-expected performance. The fact that Alphabet has also forecasted capital expenditures around $75 billion for 2025, significantly above analyst expectations, adds another layer of uncertainty.” Josh Gilbert, market analyst at eToro, commented.
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Advertising business performance
In contrast, the company’s advertising sector showed resilience, with revenue climbing to $72.4 billion, surpassing analyst estimates of $71.7 billion. YouTube’s advertisement sales exhibited strong growth, increasing by 13.8 percent during the quarter.
Operating income margin
The company’s operating income margin stood at 32.1 percent for the quarter, indicating improvement but remaining slightly below expectations. Concerns linger regarding Alphabet’s ability to expand margins in 2025, particularly given the anticipated slowdown in revenue growth and rising depreciation costs.
Sluggish cloud segment performance
CFO Anat Ashkenazi addressed the cloud segment’s performance during the earnings call, citing slower growth as a result of being “capacity constrained,” while underscoring that demand continues to be robust. However, this explanation did little to alleviate investor apprehensions regarding the slowdown in cloud growth, which fell from 35 percent in the third quarter to 30 percent in the fourth quarter.
The company’s search business maintained its positive momentum, achieving 13 percent growth for the quarter. This performance has contributed to Alphabet’s shares rising 41 percent over the past 12 months, outpacing both Amazon’s 39 percent gain and Microsoft’s 2 percent increase during the same timeframe.
