Alphabet shares tank 7% on revenue lag, bump up in AI spending

Alphabet joined Meta in boosting spending on AI.

Shares of Google parent-Alphabet, tanked over 7 percent on Wall Street weighed down by the company's lower-than-expected quarterly revenue and big capital expenditures plans for its artificial intelligence offerings.

The company beat earnings estimates by 2 cents per share, with revenues reaching $96.47 billion, slightly below the $96.56 billion estimated by LSEG forecasts. Alphabet saw a 12 percent year-over-year revenue growth, though its YouTube advertising, search business, and services segment showed signs of slowing.

In particular, the lower-than-expected revenue from the company's cloud business weighed on the sentiment. Alphabet's cloud revenue came at $11.96 billion, falling short of expectations of $12.19 billion, disappointing the Street much like Microsoft’s did just the week before.

In addition, Alphabet also announced plans to spend $75 billion on capital expenditures as it accelerates its AI initiatives and competes with other bluechip rivals in building data centers and infrastructure. This guidance far surpassed Wall Street’s expectations of $58.84 billion, according to FactSet.

The company sees "opportunities for further productivity and efficiency" and will continue prioritising these areas. With this, Alphabet joins Meta in ramping up its annual AI spending.

Alphabet's CEO Sundar Pichai stated that advancements in Generative AI will further enhance Google's AI-driven search capabilities, a strategy that has been "playing out positively" for the company.

"We’ll continue to bring AI in more powerful, multimodal ways," Pichai stated after the quarterly earnings report, alluding to expanding use cases for Google Search. He added that AI overviews have seen strong growth, especially among younger users, and are being well-received across all user segments.

Meanwhile, Alphabet has another problem to deal- China's plans to launch an anti-trust probe into Google as part of its retaliation to Trump's tariffs on Chinese imports. These concerns plagued the big tech company just a few days after China's low-cost AI-startup DeepSeek rattled the global tech space with concerns over the high AI spending of US tech companies.

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