FILE PHOTO: A Google logo is seen at a company research facility in Mountain View, California, U.S., May 13, 2025. REUTERS/Carlos Barria/File Photo
Feb 4 (Reuters) - Alphabet said on Wednesday that capital expenditure could as much as double this year, in yet another aggressive spending ramp-up by the Google parent as it deepens investments to allay constraints on compute capacity and push ahead in the AI race.
Alphabet and its Big Tech rivals are expected to collectively shell out more than $500 billion on AI this year. Meta last week hiked capital investment for AI development this year by 73%, while Microsoft also reported record quarterly capital expenditure.
The aggressive expansion in outlay comes at a time when investors have increasingly grown concerned about payoffs from AI investments. Google, however, has been able to show strong progress in its AI efforts, and its stock has surged 76% since the beginning of 2025.
"We are seeing our AI investments and infrastructure drive revenue and growth across the board," CEO Sundar Pichai told analysts on a conference call on Wednesday.
Alphabet executives said that investments in AI computing power capacity - servers, data centers and networking equipment - were central to the company's plans to target capital expenditure of $175 billion to $185 billion this year, up from $91.45 billion in 2025. Analysts had expected on average that it would spend about $115.26 billion this year, according to data compiled by LSEG.
Alphabet shares were volatile in after-hours trading - falling 6% before recouping some losses to trade down 2%, as investors weighed the swell in spending against surging revenue and profit, both of which beat expectations in the December quarter.
The company's cloud business in particular reported stellar growth in the fourth quarter ended December, surging 48% to $17.7 billion, beating analyst expectations.
"We've been supply-constrained, even as we've been ramping up our capacity," Pichai said. "Obviously, our capex spend this year is an eye towards the future."
Pichai said he expected Alphabet to face continued capacity constraints through the year.
GOOGLE IS NOW A LEGITIMATE HYPERSCALER ALONGSIDE AMAZON AND MICROSOFT
The launch of Google's Gemini 3 AI model in November reshaped the narrative around Google as an AI laggard. The strong reception propelled the company in the AI arms race and prompted rival OpenAI to issue an internal "code red" to push teams to accelerate development.
Google's enterprise-grade Gemini model has sold 8 million paying seats across 2,800 companies, Pichai said. Last month, Google scored one of its biggest deals yet, a cloud partnership with Apple to power the iPhone maker's AI offerings with its Gemini models.
The cloud division's growth was "importantly higher growth than Microsoft Azure for the first time in several years," helping the parent company to justify the capex hike, said Gil Luria, a D.A. Davidson analyst.
"Cloud at 48% growth with rapidly expanding margins is no longer a 'show me' story: they showed us," said Ethan Feller, stock strategist at Zacks Investment Research. "Google has established itself as a legitimate hyperscaler alongside Amazon and Microsoft, with AI workloads driving real enterprise demand."
Alphabet executives have touted the cloud as a proof point of AI-driven revenue on past earnings calls, but the most recent quarter suggested newfound confidence in messaging around growth from other parts of the business, like the search engine, that have been bolstered by AI integrations.
Google's Gemini AI assistant app now has more than 750 million users per month, Pichai said, up by 100 million compared with November. Daily queries in AI Mode, a chatbot-like feature in its native search engine, have also doubled since launch.
Gemini has helped the advertising unit to deliver ads on long, complex search queries that were previously difficult to monetize, Google's chief business officer, Philipp Schindler, told analysts.
The company reported total revenue of $113.83 billion for the quarter, beating analyst estimates of $111.43 billion, per LSEG data. Adjusted profit per share of $2.82 also beat estimates of $2.63.
(Reporting by Deborah Sophia in Bengaluru and Kenrick Cai in San Francisco; Editing by Pooja Desai, Sayantani Ghosh and Matthew Lewis)
