In addition, total operating income climbed 31 percent, operating margin expanded by 5 percentage points, to 32 percent, and earnings per share increased by 31 percent, to $2.15.
These are impressive numbers for a tech giant, but not remarkable enough for Wall Street analysts and investors looking for higher growth, especially in the cloud segment, which grew slower from the third quarter due to increasing competition from Microsoft, Amazon, and others.
As a result, Alphabet’s shares, which were hitting old-time highs in the previous session, headed south following the release of the financial results. Microsoft’s shares suffered similar losses last week following weak guidance for its cloud business.
Meanwhile, Alphabet announced a massive multibillion-dollar spending plan to help maintain its leadership in core businesses and launch new products and business models, as outlined by its CEO, Sundar Pichai, in a statement following the release of its fourth-quarter financial report.
The fourth quarter “was a strong quarter driven by our leadership in AI and momentum across the business. We are building, testing, and launching products and models faster than ever, and making significant progress in compute and driving efficiencies,” he said.
“In Search, advances like AI Overviews and Circle to Search are increasing user engagement. Our AI-powered Google Cloud portfolio is seeing stronger customer demand, and YouTube continues to be the leader in streaming watchtime and podcasts. Together, Cloud and YouTube exited 2024 at an annual revenue run rate of $110 billion.”
Pichai sees the company’s recent financial results as proof of the power of its differentiated full-stack approach to AI innovation and the continued strength of its core businesses.
“We are confident about the opportunities ahead, and to accelerate our progress, we expect to invest approximately $75 billion in capital expenditures in 2025,” he said.
However, Wall Street doesn’t seem to share Pichai’s confidence about the payoff of these investments, as evidenced by the decline in the company’s shares following the capital expenditures announcement.
Wall Street usually likes companies to spend funds on pursuing new business opportunities. If invested effectively, these funds help improve the corporate top and bottom lines in the long term.
However, these funds reduce free cash flow in the short term, leaving fewer funds for share buybacks and dividend hikes, which return money to shareholders at a time when one of the company’s revenue growth drivers slows down. Wall Street is becoming skeptical of massive AI investments assumed by tech giants.
“Alphabet’s latest earnings report sent shockwaves through the market, wiping out billions in market cap as investors reacted to slowing cloud growth and AI-driven spending,” Michael Martin, vice president of market strategy at TradingBlock, told The Epoch Times via email.
“Despite the stock’s sharp drop, a few analysts remain confident in Google’s AI strategy, with Morningstar even raising its fair value estimate. The company is betting huge on AI to drive future growth, but for now, Wall Street is questioning whether those investments will pay off quickly enough.”
Neal K. Shah, chairman of Counterforce Health, sees one significant and dangerous flaw in Big Tech’s “bigger is better” AI strategy—and Wall Street is not going to like it: Foundation LLMs are becoming commoditized, while the true AI revolution is happening at the small, focused level.
“That’s where the potentially disruptive AI solutions are being built,” he said in an email to The Epoch Times.
Shah believes investors should consider the market’s adverse reaction a wake-up call.
“The real victors in the AI revolution won’t be those who spend the MOST, but those who spend the SMARTEST,” he said.
