Google parent company Alphabet Inc. (GOOGL.US) reported fourth-quarter revenue that was lower than analysts expected due to slowing growth in its cloud business. After the results were announced, the stock fell nearly 8% after hours on U.S. stocks. Alphabet said sales excluding partner expenses were $81.6 billion, compared with analysts' expectations of $82.8 billion. The financial report shows that Alphabet’s total revenue in the fourth quarter was US$96.5 billion, a year-on-year increase of 11.8%, which was lower than market expectations; earnings per share were US$2.15, higher than market expectations of US$2.13.
The company also expects capital expenditures to reach $75 billion in 2025, well above analysts' expectations of $57.9 billion, related to the construction of data centers and artificial intelligence infrastructure. This pushed Broadcom's stock price up more than 6%.
Investors are urging Alphabet to prove that it is investing more in artificial intelligence while maintaining growth momentum across its business units in an increasingly competitive market. Google's cloud unit has benefited from the artificial intelligence boom as startups need more computing power to get work done, but sales of about $12 billion in the quarter ended Dec. 31 fell short of expectations. Google Cloud still lags behind Amazon.com Inc. and Microsoft Corp. in scale.
Cloud revenue growth slows
Alphabet fell to $189.40 in after-hours trading and closed at $206.38. The stock has gained 9% this year.
Investors will be looking for reassurances that spending on artificial intelligence is not excessive after Chinese AI startup DeepSeek surprised Silicon Valley by saying it has created powerful AI models at a fraction of the cost of U.S. rivals.
Search advertising brought in $54 billion in sales, slightly more than analysts expected. Google has long dominated the market but now faces new threats from artificial intelligence rivals and antitrust challenges.
In August last year, a U.S. judge ruled that Google had monopolized the search market through illegal transactions. The Justice Department and a group of states also accuse Google of violating antitrust laws over technology used to buy and sell ads on websites, harming publishers and advertisers in the process. Key proceedings in both cases are expected to take place in 2025.
YouTube reported revenue of $10.5 billion, beating analysts' expectations of $10.2 billion. During an earnings call with investors, Chief Commercial Officer Philip Schindler said YouTube's early investment in podcasts, which were popular during the U.S. election and drove an increase in bipartisan ad spending, is paying off.
Alphabet's other businesses, including life sciences unit Verily and self-driving car project Waymo, generated $400 million in revenue, missing expectations of $592 million. Alphabet has been aggressively expanding Waymo, with the company recently announcing plans to expand to 10 new cities by 2025. But other divisions are under pressure to spin off into independent startups.