Alphabet slides after cloud sales fall short of expectations
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Alphabet fell as low as US$187.12 in extended trading, after closing at US$206.38.
PHOTO: AFP
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NEW YORK – Google parent Alphabet dipped after it posted fourth-quarter revenue that missed analysts’ expectations after growth in its cloud business slowed, raising concern from investors about the billions the US tech giant is spending on artificial intelligence.
Alphabet fell as low as US$187.12 in extended trading, after closing at US$206.38.
Quarterly sales, excluding partner payouts, were US$81.6 billion (S$110.3 billion), Alphabet said on Feb 4 in a statement.
Analysts had projected US$82.8 billion, according to data compiled by Bloomberg.
Alphabet announced US$75 billion in 2025 capital expenditures, far exceeding the US$57.9 billion that analysts expected.
Alphabet chief executive Sundar Pichai said on an earnings call with investors that the investment is “directly driving revenue” because it helps customers.
Google’s cloud unit is so far the clearest indicator of how the AI boom is contributing to the company’s sales.
Start-ups are becoming customers because they require more computing power for their work, but not as quickly as expected.
Sales of about US$12 billion in the period ended Dec 31, 2024, missed estimates.
Google Cloud still trails behind Amazon.com and Microsoft in size, and Mr Pichai said Google needs to keep investing in cloud to “ensure we can address the increase in customer demand”.
Investors have urged Alphabet to demonstrate that it is maintaining momentum across its businesses as it spends more heavily on AI, and as competition in that market intensifies.
Chinese AI start-up DeepSeek took Silicon Valley by surprise in January
During the earnings call, Mr Pichai said DeepSeek has a “tremendous team”, but Google’s models have also excelled in efficiency.
Still, said Emarketer senior analyst Evelyn Mitchell-Wolf via e-mail, DeepSeek’s model is open to use, and Google’s costs money, raising concerns that its advantages in AI and search could “meaningfully erode” in 2025.
Synovus Trust senior portfolio manager Dan Morgan added that the tech giant is now under increasing pressure to show how its investments in AI are translating to real business gains.
Mr Morgan said the richest returns from the AI boom may come not to companies such as Google that are pushing forward the models, but to the companies that specialise in chips. “You don’t want to be the people who are mining for gold,” he said. “You want to be the guy who sells them the picks.”
Alphabet’s planned build-out of data centres and infrastructure for AI led to a more than 6 per cent boost in Broadcom shares in after-hours trading.
In the quarter, net income was US$2.15 per share, compared with Wall Street’s US$2.13 per-share estimate.
Search advertising brought in US$54 billion in sales, slightly beating analysts’ estimates.
Google has long dominated the market, which is newly under threat by both AI competitors and antitrust challenges.
In August, a US judge ruled that Google monopolised the search market through illegal deals.
The Justice Department and a group of states also allege that Google has violated antitrust law for the technology used to buy and sell website ads, harming publishers and advertisers in the process.
Key proceedings in both cases are expected in 2025.
Video-streaming site YouTube reported US$10.5 billion in revenue, exceeding analysts’ estimates of US$10.2 billion.
On an earnings call with investors, Google’s chief business officer Philipp Schindler said an early investment by YouTube in podcasts, which were popular during the US election, and which drove an increase in ad spending by both parties, is paying off.
Alphabet’s Other Bets, a collection of futuristic businesses that includes the life sciences unit Verily and the self-driving car effort Waymo, generated US$400 million in revenue, missing estimates for US$592 million.
Alphabet has been aggressively expanding Waymo, which recently announced plans to test in 10 new cities in 2025. But the other units have been pressured to spin off as independent start-ups.
During the call on Feb 4, Mr Pichai said that Waymo is now averaging 150,000 trips a week, and will soon go on its first “international road trip” in Tokyo.
The company is working on a new version of Waymo’s driving technology that will trim hardware costs, Mr Pichai added. BLOOMBERG
