Google parent to spend $75 billion in 2025 to accelerate its AI efforts

Alphabet CEO Sundar Pichai

Google parent Alphabet plans to invest around $75 billion in capital expenditures in 2025, chief executive Sundar Pichai said, as the artificial intelligence (AI) arms race intensifies among tech giants.

This investment follows similar announcements by Microsoft, which plans to invest $80 billion in AI infrastructure in 2025, and Facebook parent Meta, which plans to invest between $60 billion to $65 billion in capital expenditure to boost its AI efforts this year.

"Our results show the power of our differentiated full-stack approach to AI innovation and the continued strength of our core businesses. We are confident about the opportunities ahead...We are building, testing, and launching products and models faster than ever, and making significant progress in compute and driving efficiencies" Pichai said on February 4, after Alphabet reported its fourth-quarter results.

Where will the investment go?

During the company's earnings conference call, Alphabet CFO Anat Ashkenazi stated that the investment will be made towards building out technical infrastructure, primarily for servers, followed by data centers and networking. In the first quarter, Alphabet plans to invest about $16 billion - $18 billion towards these initiatives, she said.

These moves come despite the sudden emergence of Chinese AI lab DeepSeek which claims to have built AI models that can rival top-tier models from US companies such as OpenAI, Meta, and Google at a fraction of the cost, causing fresh concerns among investors over the billions of dollars being poured in by tech companies to develop their AI models and products.

In the earnings call, Pichai praised DeepSeek saying it is a "tremendous team" and they have done "good work". However, he also argued that the search giant's Gemini Flash 2.0 and Flash Thinking 2.0 models are "some of the most efficient models" out there, including compared to DeepSeek's V3 and R1.

"A lot of it is our strength of the full stack development into an optimization, our obsession with cost per query ... sets us up well for the workloads ahead, both to serve billions of users across our products and on the cloud side" he said.

"I think part of the reason we are so excited about the AI opportunity is we know we can drive extraordinary use cases because the cost of actually using it is going to keep coming down, which will make more use cases feasible. And that's the opportunity space. It's as big as it comes. And that's why you're seeing us invest to meet that moment" Pichai added.

Read: Confident of keeping momentum going in 2025: Sundar Pichai to Googlers in New Year mail

Pichai also argued that the proportion of the spend towards inference compared to training has been increasing. "I think the reasoning models accelerates that trend because it's obviously scaling upon inference dimension as well," he said.

"We have a unique advantage because we develop every component of our technology stack, including hardware, compilers, models and products. This approach allows us to drive efficiencies at every level, from training and serving, to developer productivity" Pichai added.

In December, Google unveiled a flurry of new AI-related product launches and feature enhancements across its services, spanning Search, YouTube, Cloud, Android, and Pixel among others.

This includes a new version of its flagship AI model, Gemini 2.0, aimed at powering the next generation of virtual agents; an experimental reasoning model Gemini Flash Thinking; video generation model Veo 2; a new quantum chip called Willow; and an enterprise version of its viral AI note-taking and research app NotebookLM.

Google also announced Android XR, a mixed-reality operating system for headsets and smart glasses with built-in Gemini that is expected to debut in 2025 with Samsung's Project Moohan headset.

Financial performance

Google however saw a slowdown in the revenues from its Cloud unit for the quarter.

Google Cloud reported $12 billion revenue in the fourth quarter, up 30.1 percent from the same period last year, led by growth in Google Cloud Platform (GCP) across core GCP products, AI Infrastructure, and Generative AI Solutions.

However, it fell short of analyst expectations who were anticipating a higher growth amid the ongoing AI boom. The unit had reported a 35 percent revenue in the September-ended quarter.

Google's advertising revenue rose 10.6 percent to $72.46 billion for the quarter. This includes Google's search revenues that increased 12.5 percent to $54.03 billion for the quarter and YouTube's ad revenues that grew 13.8 percent to $10.47 billion.

Overall, Alphabet saw its revenue grow 12 percent year-on-year (YoY) to $96.5 billion. Net income increased 28 percent YoY to $26.5 billion.