Alphabet Unveils Massive AI Spend — Markets Push Back
Shares of Alphabet fell as much as 5% early Thursday after the Google parent stunned investors with plans to spend up to $185 billion in capital expenditures in 2026, sharply exceeding Wall Street forecasts.
In its fourth-quarter earnings report, Alphabet said 2026 capex would land between $175 billion and $185 billion, nearly double the $91.4 billion spent in 2025. Analysts had expected spending closer to $120 billion, making the announcement a clear negative surprise.
The move reignited broader concerns about the scale, timing, and payoff of AI investments across Big Tech, where hyperscalers are now projected to deploy roughly $500 billion into AI infrastructure this year alone.
AI Arms Race Intensifies Across Big Tech
Alphabet joins peers including Microsoft, Meta, and Amazon in aggressively scaling AI infrastructure.
While AI demand remains strong, investors have grown more cautious — increasingly asking when massive spending turns into durable margins, not just growth headlines.
Management Defends Capex as Cloud Momentum Accelerates
CFO Anat Ashkenazi said the elevated 2026 spending will focus on AI computing infrastructure, supporting frontier model development and rising demand across Google Cloud and Services.
“The investments that we’ve made in AI — it’s already delivering results across the business,” Ashkenazi said.
She pointed to Google Cloud as a key proof point:
- Cloud revenue: $17.7B in Q4
- Growth: +48% year-over-year
- Estimate: $16.2B
Ashkenazi added that Alphabet plans to deploy capital while maintaining a “very healthy financial position.”
Earnings Beat, But Spending Dominates the Narrative
Alphabet’s fourth-quarter results exceeded expectations:
- Revenue: $113.8B (+18% YoY) vs. $111.4B expected
- EPS: $2.82 vs. $2.65 expected
Google Services — which includes Search and YouTube advertising — grew 14% to $95.9 billion, slightly ahead of estimates. CEO Sundar Pichai said AI-powered Search features are driving higher user engagement.
Gemini Momentum Still Strong
Alphabet shares had climbed more than 20% since the prior earnings report, fueled by:
- The release of Gemini 3, which outperformed rivals in benchmark tests
- A surge in Gemini adoption, now exceeding 750 million monthly active users
- Expanding Cloud partnerships with Meta, Anthropic, and OpenAI
RBC Capital Markets analyst Brad Erickson said Gemini traction and Cloud growth offer “credible proof points” that justify elevated AI spending — even as markets digest the near-term impact.
WSA Take
Alphabet didn’t miss on earnings — it missed on spending comfort.
The selloff reflects a clear shift in market psychology: AI leadership alone is no longer enough. Investors now want discipline, visibility, and returns — not just scale.
Alphabet may ultimately prove this investment cycle was necessary. But in today’s market, unchecked ambition comes with a valuation cost.
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