Alphabet’s significant investment in artificial intelligence (AI) infrastructure is under increasing scrutiny. Investors expressed disappointment over the company’s weaker-than-expected cloud growth and a new forecast that suggests even greater spending on AI expansion. While Alphabet’s revenue rose 12% year-over-year to $96.5 billion in the fourth quarter, growth in its cloud services and other business segments fell short of expectations. This led to a more than 7% drop in the company’s stock price after markets closed on Tuesday. During the conference call, CEO Sundar Pichai reassured investors, emphasizing that the company’s substantial AI investments would ultimately enhance search, YouTube, and other products.
However, he also stressed that the company must improve its ability to turn AI innovations into profitable services that will attract users and increase engagement. This big challenge could compel the tech giant to spend more on AI and less on things like its mobile hardware businesses.
Investors also grew concerned about the company’s broader plans to pump $75 billion into these efforts this year, 29% higher than Wall Street expected. The money will go towards upgrading data centers, building new computing hardware, and boosting networks to support AI applications. It will also be spent on improving the quality of its human workers and investing in research to advance the technology.
While these investments are a key strategy for the future, they are not without risks, particularly for the companies that build AI-related software and sell hardware for running it. Several large chip makers, including Nvidia Corp., have seen their stocks decline as concerns have risen that the AI market is starting to become oversaturated. The rise of Chinese startup DeepSeek’s low-cost open-source models has led some investors to question whether the megacap tech titans need to continue investing so heavily in their AI buildouts.
The gloomy outlook weighed on the tech sector, sending shares of Google rivals Facebook Inc. and Microsoft Corp. down about 7%. The declines came despite strong earnings reports from both companies, which beat expectations and raised guidance. Those gains were partially offset by fears about rising interest rates and slowing global economic growth. Investors may continue to weigh these risks as they weigh a possible buy in the technology sector, and it will be crucial to conduct thorough research before making any decisions about buying or selling shares of any company. Investing in any stock involves risk, and you should carefully consider your financial situation, market conditions, and personal investment goals before making any purchases. Investing in the Funds allows you to diversify your portfolio with a low-cost, diversified fund designed to help investors achieve their long-term goals.
