Less Dumb Investing

Google just posted another quarter of slowing revenue growth, and investors weren’t happy. After the earnings report, shares dropped 7% in after-hours trading, wiping out most of the year’s gains.

Alphabet, Google’s parent company, reported $96.5 billion in revenue for Q4, up 12% from the same period last year. That might sound solid, but it’s the lowest growth rate they’ve reported since 2023. Meanwhile, net income jumped 28.3% to $26.6 billion, but that wasn’t enough to calm investors worried about the company’s trajectory.

There’s a growing debate about the increasing cost of AI investments, and Google isn’t immune. Chinese startup DeepSeek has rattled Silicon Valley by building powerful AI models on a much lower budget than U.S. giants. The company’s chatbot shot to the top of app store rankings, briefly surpassing both ChatGPT and Google’s Gemini. This raises questions about how efficiently Big Tech is spending its AI budgets.

CEO Sundar Pichai, however, made it clear that Google isn’t pulling back on AI spending—it’s doubling down. The company plans to spend around $75 billion on capital expenditures this year, up from $52.5 billion in 2024. That’s a staggering increase, fueled by the need for more AI hardware and data centers. It also highlights a reality that many AI-driven companies are facing: running advanced models at scale is expensive.

Google’s cloud business, which was supposed to be a growth engine, disappointed Wall Street. It pulled in $12 billion last quarter, up 30.1% year-over-year, but that’s a slowdown from the previous quarter. The cloud division was expected to help offset slowing ad revenue, but competitors like Amazon and even TikTok are chipping away at Google’s search dominance.

Speaking of search, Google is under attack from multiple fronts. OpenAI just released “Deep Research,” a feature in ChatGPT that scours the web and compiles detailed reports—essentially a direct challenge to Google Search. Meanwhile, Google is also dealing with legal battles on two continents. In China, the government launched an antitrust investigation against the company, a move widely seen as retaliation for Trump’s new tariffs. In the U.S., Google is bracing for a possible breakup after a federal judge ruled it has a monopoly in online search.

On top of all this, Google is trying to cut costs. The company recently offered voluntary buyouts to employees working on its Pixel devices and Android software. It’s clear that Google is looking for ways to trim the fat while it pours billions into AI infrastructure.

Perhaps the most eyebrow-raising move was Google’s quiet decision to remove language from its website that once pledged not to build AI for weapons or technologies designed to harm people. It also scrapped a policy banning “technologies that cause or are likely to cause overall harm.” Instead, Google is now framing AI development as a matter of national security, calling on companies and governments to work together on AI that “protects people” and “promotes global growth.”

The takeaway? Google is all-in on AI, but that commitment comes at a cost. The company is spending billions to keep up in an AI arms race where efficiency and execution will be key. Investors, for now, are skeptical that the spending will pay off in the short term. Expect continued volatility as the market tries to figure out whether Google’s AI bets will deliver real returns—or just higher expenses.