Alphabet Inc. Shares Drop Amid Revenue Miss and High AI Investment Plans

2025-02-28

Alphabet Inc., the parent company of Google, saw its shares drop as much as 9% in after-hours trading on Tuesday, February 4, 2025, following a revenue miss in its fourth-quarter earnings report. The company reported revenue of $96.47 billion, falling short of the $96.56 billion expected by analysts polled by LSEG. Despite beating earnings per share estimates at $2.15 compared to the $2.13 consensus, investors were spooked by the company’s announcement of a $75 billion capital expenditure plan for 2025, significantly higher than the $58.84 billion Wall Street had anticipated. This investment is aimed at expanding Alphabet’s artificial intelligence (AI) strategy, particularly in its cloud and AI hardware sectors.

Alphabet’s cloud revenue for the quarter came in at $11.96 billion, below the $12.19 billion expected by analysts. The company attributed the shortfall to a “tight supply-demand situation” for AI products, with demand outpacing available capacity. CFO Anat Ashkenazi noted that Alphabet is working to bring more capacity online throughout the year. The company’s cloud business, while growing 30% year-over-year, continues to trail behind market leaders like Amazon Web Services and Microsoft Azure.

The tech giant also reported slower growth across its key advertising segments, including Google Search, YouTube ads, and its services business. Google’s advertising revenue grew 10.6%, down from 11% a year ago, while YouTube ads revenue growth slowed to 13.8% from 15.5% in the same quarter last year. The company’s Other Bets segment, which includes ventures like Waymo and Verily, also underperformed, generating $400 million in revenue compared to the $616.4 million expected by analysts.

Despite the challenges, Alphabet remains optimistic about its AI-driven future. The company plans to invest heavily in technical infrastructure, including servers and data centers, to support its growth across Google Services, Google Cloud, and Google DeepMind. Analysts like Gene Munster of Deepwater Asset Management called the stock’s post-earnings drop an “overreaction,” emphasizing that the AI hardware trade still has significant growth potential.

Alphabet’s shares closed the regular trading session at $144.50 but fell sharply in after-hours trading, reflecting investor concerns over the company’s ability to capitalize on its AI ambitions in the near term.

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