Google parent Alphabet stock tumbled in early Wednesday trading after earnings from the owner of Google beat Wall Street expectations but fell short on revenue. The tech-heavy Nasdaq index dipped 0.7% shortly after market open. Leading the losses was an 8% drop for Google parent Alphabet, a slide which erased as much as $211 billion in market value. Alphabet stock saw its biggest percentage loss since October 2023. The fall is also reported to be the largest one-day decline in value for the company.
Alphabet shares in midday trades were off 7.6% at $190.70 and closed around $193.
This downturn followed the tech giant’s announcement of a substantial increase in spending on artificial intelligence (AI) initiatives, despite a deceleration in revenue growth. The stock sell-off reflects growing investor apprehension regarding the escalating AI expenditure among major US tech firms. This concern was amplified after Chinese startup DeepSeek revealed the development of a powerful AI model for under $6 million, reportedly achieved without utilizing Nvidia’s top-tier hardware. DeepSeek’s announcement intensified questions about the efficiency and necessity of the massive AI investments being made by companies like Google.
During earnings announcement, Alphabet CEO Sundar Pichai outlined plans for a staggering $75 billion in capital expenditures for 2025. This figure marks a significant jump from the $52.5 billion spent in the previous year and far exceeds analysts’ projections. This massive investment is primarily directed towards bolstering Google’s AI capabilities and infrastructure. “We are confident about the opportunities ahead, and to accelerate our progress, we expect to invest approximately $75 billion in capital expenditures in 2025,” CEO Sundar Pichai said in the earnings release.
Sundar Pichai on China’s DeepSeek
When asked about his thoughts on the DeepSeek developments, Pichai said that while DeepSeek’s team is “tremendous,” and doing “very good work,” Google’s models “are some of the most efficient models out there, including comparing to DeepSeek’s V3 and R1.” His comments suggest Google is betting on the future scalability and cost-effectiveness of AI applications to justify the current expenditure.
What is worrying investors
Adding to investor worries, Alphabet’s cloud-computing division, a key growth area, reported a revenue increase of 30%. While still substantial, this was less than the 35% growth in the previous quarter and fell short of Wall Street expectations. This slowdown in cloud revenue growth, combined with increased AI spending, further fueled investor concerns about Alphabet’s profitability and future performance.
Overall, Alphabet’s quarterly revenue grew by 12% to $96.5 billion. While a large number, this represents the company’s slowest growth rate since 2023, indicating a broader deceleration in Alphabet’s business momentum.
Google is part of a larger trend among Big Tech companies, including Facebook parent Meta and Microsoft, who are making massive investments in AI infrastructure. This race is driven by competition with each other and with Chinese tech companies to develop leading-edge AI models. While DeepSeek’s efficient model raised concerns about potential overspending, Meta and Microsoft have also reiterated their commitment to significant AI investments in recent earnings calls. Executives and analysts argue that control over data centers and access to advanced chips will be critical competitive advantages in the long run, justifying the substantial upfront costs.
