Alphabet Doubles Down on AI Spending

Google's parent company announced some very ambitious plans for spending on AI infrastructure Wednesday, but investors weren't exactly enthusiastic. Alphabet said it could pour as much as $185 billion into capital projects this year—largely AI chips and infrastructure—roughly double last year's tab and far above Meta's projected $135 billion, the Wall Street Journal reports. That level of investment would amount to around 40% of Google's annual revenue, which just cleared $400 billion, twice Meta's haul. Alphabet reported a stronger profit than expected Wednesday, but its stock still fell more than 3% on Thursday, with investors questioning if the AI spend would be worth it, the AP reports.

• The company is spending from a position of strength, the Journal notes. Its Gemini 3 AI model is widely viewed as a performance leader, and Google is leaning on its massive distribution machine—Search, Gmail, YouTube—to push it out. The company said its standalone Gemini app already has more than 750 million monthly active users, which is only a slice of total Gemini usage.
• Underpinning the AI splurge: a very healthy core business. Ad revenue grew 14% in the fourth quarter, up from 13% the prior quarter, the company said Wednesday, while Google Cloud's revenue surged 48% year over year to $17.7 billion. Cloud generated a record $5.3 billion in operating profit, beating Wall Street's expectations by 45%. Alphabet's operations threw off nearly $165 billion in cash last year, the highest in the S&P 500.

• Still, the bet carries risk. Heavier capital spending will drive up depreciation, which already shaved 18% off net income last quarter. Alphabet's valuation has nearly doubled from levels seen when antitrust worries weighed on the stock, and broader market anxiety is building over how AI could upend existing software companies—many of which are Google Cloud customers.
• While investors appear skeptical about the big AI spend. Gil Luria, head of technology research at DA Davidson, tells the New York Times that the company's strong sales should reassure them that pouring money into data centers is necessary for growth. "Google is now being seen as the biggest winner in AI," Luria says. "Good results are going to create a relief that at least somebody is winning in the next big market."
• In November, Amin Vahdat, Google's AI infrastructure boss, said that to meet demand for AI services, the company had to double serving capacity every six months, CNBC reports. "The competition in AI infrastructure is the most critical and also the most expensive part of the AI race," he told employees.