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Alphabet Faces Investor Scrutiny Over AI Spending Amid Google Cloud Growth Slowdown

Alphabet is set to face investor scrutiny over its substantial investment in artificial intelligence (AI) as it prepares to announce its earnings on Tuesday. The revenue growth of the Google parent company is expected to have slowed in the holiday quarter due to a deceleration in its advertising and cloud businesses.


Credit: GOOGLE
Credit: GOOGLE

Similar to other major U.S. tech giants, Alphabet is now under increased scrutiny regarding its capital expenditure, particularly following the launch of low-cost AI models by Chinese startup DeepSeek. These models pose a threat to the AI industry, potentially leading to a price war.


Alphabet's capital expenditure for the previous year is estimated to have reached $50 billion, with further investments planned for 2025 to bolster its cloud expansion and AI-driven search features. These investments, including crucial summaries, are essential for defending its market share and attracting more advertising revenue.


Executives from Microsoft and Meta Platforms have recently defended their significant AI spending plans, emphasising the importance of staying ahead in this evolving field. However, Google Cloud's growth is anticipated to slow down in the fourth quarter, despite high expectations for this segment.


Susannah Streeter, head of money and markets at Hargreaves Lansdown, highlighted the importance of maintaining a balance between continued elevated investment and profitability. Investors will be closely watching for evidence of this delicate equilibrium.


Revenue from Google's Search and Other business is projected to have increased by 11.2% in the fourth quarter, slightly lower than the 12.2% rise in the previous quarter. Overall, Alphabet's revenue is expected to grow by 11.9% to $96.6 billion, a slower pace compared to the third quarter.


Alphabet, known for its widely-used Search and YouTube services, faces the challenge of retaining its dominant position in the search advertising market amidst growing competition from e-commerce giant Amazon.com and popular social media platforms like TikTok. The company may have benefitted from higher political ad spending during the U.S. Presidential elections in the fourth quarter.


The focus is now on Google's cloud business, which experienced its fastest growth in two years in the September quarter due to increased AI spending by businesses. Despite Alphabet's shares rising by about 7% this year, concerns have arisen following Microsoft's recent lacklustre performance, where Azure cloud computing growth slowed in the December quarter.


Analysts are keen to see if Google encounters similar challenges, where AI services drive growth while the core cloud business lags behind. Google Cloud is expected to report a 32% revenue increase in the fourth quarter, surpassing Microsoft's 31% growth and Amazon's estimated 19% rise.

 
  • Alphabet faces investor scrutiny over AI spending

  • Google Cloud growth expected to slow in the fourth quarter

  • Revenue from Google's Search and Other business projected to rise by 11.2%


Source: REUTERS

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