Investors are beginning to worry that Big Tech is developing a bigger spending problem than Carrie Bradshaw and her infamous shoe addiction.
Alphabet sank 6.94%, making today its worst trading day since 2023, after it reported quarterly earnings last night.
But, on the surface at least, the Magnificent 7 company that everyone still just refers to as Google had a pretty solid quarter.
- Google cloud revenue came in at $11.96 billion, a 30% increase—but still underperforming Wall Street expectations of $12.19 billion for the quarter.
- Google’s search business revenue grew 12.5%, slightly slower than the same quarter last year.
- YouTube’s ad revenue rose 13.8% to $10.47 billion, beating expectations of $10.23 billion.
- Google’s bread-and-butter advertising revenue rose 10.6%.
But the firm’s AI spending is what truly blew past expectations—and not for the better. The company said it is planning to shell out $75 billion on capital expenditures for AI infrastructure in 2025, which is a staggering 29% higher than Street estimates of $57.9 billion.
CEO Sundar Pichai justified the gargantuan infrastructure number by arguing that Alphabet needs to build data centers to compete with its Silicon Valley peers like Meta Platforms, as well as international challengers like DeepSeek.
But… maybe DeepSeek isn’t the best example to illustrate his point. The Chinese startup showed everyone that it could develop a competitive generative AI model for just a fraction of what US AI firms have been shelling out, stoking fears all this spending is pretty much pointless. For now, at least, it appears Silicon Valley is keeping calm and spending on.
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The solution, according to analysts? Alphabet needs to start showing some tangible results—stat.
“Like other leading platforms, GOOGL is investing to fuel its GenAI portfolio. But incremental [return on invested capital] matters from here as GOOGL now needs to ship new products to prove incremental engagement, revenue and [free cash flow],” wrote Morgan Stanley equity analyst Brian Nowak in a note today. He maintained his overweight rating of the stock but lowered his price target from $215 to $210.
The flip side
On the other end of the AI market, chipmaker Advanced Micro Devices is down 6.27% today—its worst single-day decline since November 2023, capping off a 35.71% drop over the past 12 months.
The semiconductor stock not only beat Wall Street expectations on both earnings per share and revenue, but also reported $3.86 billion in its data center sales, up 69% year over year—which sounds incredible at first, but was still below the $4.14 billion sold last quarter.
But if DeepSeek really did build its model without using the latest Nvidia chips, it shows that maybe Big Tech doesn’t actually need top-of-the-line chips. Alphabet is using its own in-house chip more and more, Pichai said during the earnings call.
Could this give AMD an opportunity to swoop in and grab some market share? Maybe—but as of today, investors aren’t betting on it.
One winner today: AMD’s disappointing revenue number, combined with Alphabet’s huge capex spending, sent Nvidia 5.35% higher.—LB