Alphabet Shares Drop 9% on Revenue Miss, Rising AI Investments
Alphabet shares plunged over 9% in after-hours trading on Tuesday following weaker-than-expected revenue in its fourth-quarter earnings report and the announcement of increased AI investments.
Key Financial Results
While earnings per share (EPS) surpassed expectations, revenue fell slightly short:
- Revenue: $96.47 billion (missed expectations of $96.56 billion)
- Earnings per share (EPS): $2.15 (beat expectations of $2.13)
Wall Street’s Focus Areas
- YouTube ad revenue: $10.47 billion (beat $10.23 billion expected)
- Google Cloud revenue: $11.96 billion (missed $12.19 billion expected)
- Traffic acquisition costs (TAC): $14.89 billion (missed $15.01 billion expected)
Slower Growth Across Key Segments
Alphabet’s overall revenue grew 12% year-over-year, slightly lower than the 13% growth in the same quarter last year.
- Google ad revenue growth: 10.6% (vs. 11% a year ago)
- Search revenue growth: 12.5% (vs. 12.7% last year)
- YouTube ads revenue growth: 13.8% (vs. 15.5% last year)
- Google Services business growth: 10.2% (vs. 12.4% last year)
Massive AI Investments Drive Capital Expenditures
Alphabet is doubling down on artificial intelligence, announcing $75 billion in capital expenditures for 2025—far exceeding Wall Street’s expected $58.84 billion (FactSet).
- Q1 2025 CapEx estimate: $16B – $18B (vs. $14.3B expected)
- Q4 2024 CapEx: $14B (vs. $13.26B expected)
CFO Anat Ashkenazi’s Statement
On the earnings call, CFO Anat Ashkenazi said the company’s infrastructure investments are primarily focused on:
- Servers
- Data centers (supporting Google Services, Google Cloud, and Google DeepMind)
Cloud Growth Slows Amid Supply Challenges
Alphabet’s cloud revenue fell short, reporting $11.96 billion vs. $12.19 billion expected. However, it still saw a 30% year-over-year increase.
Ashkenazi acknowledged supply constraints:
“We exited the year with more demand than available capacity. We are in a tight supply-demand situation and working hard to bring more capacity online.”
Alphabet is ramping up cloud capacity throughout 2025 to compete with Amazon Web Services and Microsoft Azure.
“Other Bets” Segment Struggles
Alphabet’s Other Bets segment, which includes Waymo (self-driving cars) and Verily (life sciences), reported $400 million in revenue—a 39% drop from $657 million last year and below Wall Street’s expected $616.4 million.
Waymo’s Expansion Efforts
Despite revenue struggles, Alphabet continues to push forward with Waymo, announcing:
- Robotaxi service expansion in Los Angeles, San Francisco, and Phoenix
- Planned commercial launch in Austin (2025), including Uber integration in Austin and Atlanta
- Testing in Tokyo, marking its first international expansion
Bottom Line
While Alphabet’s ad business remains strong, slower growth, cloud underperformance, and aggressive AI spending have raised investor concerns. The company is betting big on AI and cloud expansion, but execution and demand-supply balance will be key in 2025.
