Alphabet Increases Capital Spending as AI Investments Rise
On Wednesday, Alphabet announced that its capital expenditures could potentially double this year. This surge in spending is mainly fueled by Google’s parent company’s commitment to ramping up investments in the competitive landscape of artificial intelligence.
In after-hours trading, Alphabet’s stock showed mixed reactions, initially dropping by 6% before recovering. Investors appeared to be grappling with both the substantial expenditure hike and an unexpectedly strong performance in sales and profits for the December quarter.
The company now expects to allocate between $175 billion and $185 billion for capital expenses this year, a stark contrast to analysts’ predictions of approximately $115.26 billion, as detailed by LSEG data.
CEO Sundar Pichai noted that the increase in spending aims to “meet customer demand and take advantage of growing opportunities.” He added, “We believe our investments in AI and infrastructure are driving overall revenue and growth.”
In 2025, Alphabet spent $91.45 billion on AI infrastructure, which primarily included servers, data centers, and network equipment. This figure aligns with the forecast for total spending between $91 billion and $93 billion in the previous year.
The expansion of Google’s cloud division has provided early benefits from AI investments, helping to offset stock losses. Revenue for this division surged by 48%, reaching $17.7 billion in the last quarter, outperforming analysts’ average estimate of a 35.2% increase, according to LSEG data.
DA Davidson analyst Gil Luria mentioned, “Google Cloud’s growth has far exceeded expectations and has outpaced Microsoft Azure for the first time in years,” implying that the acceleration is linked directly to capital expenditure investments.
For the quarter, the company reported total revenue of $113.83 billion, surpassing the analysts’ estimate of $111.43 billion. Adjusted earnings per share stood at $2.82, exceeding expectations of $2.63.
Major cloud players have invested heavily—hundreds of billions of dollars—into enhancing their AI infrastructure, driven by rising enterprise demand for cloud services and a push to fast-track AI technology development.
Like its larger competitors, Amazon Web Services and Microsoft’s Azure, Google Cloud faces capacity constraints that have limited its ability to fully capitalize on AI demand from customers.
Along with Meta, significant cloud firms are projected to collectively spend over $500 billion on AI this year. Recently, Meta increased its capital spending on AI development by 73%, estimating that spending will range from $115 billion to $135 billion, while Microsoft reported its highest quarterly capital spending to date.
This aggressive investment strategy raises some concerns among investors regarding the returns from AI. Nonetheless, Google is making notable advancements in its AI initiatives.
The launch of its latest model, Gemini 3, received positive reviews last November, marking progress in the AI competition. Following this announcement, OpenAI CEO Sam Altman reportedly initiated an internal “code red” to expedite development within his team.
Pichai also shared that Google’s AI assistant app, Gemini, now boasts over 750 million monthly users, a jump of 100 million since November. Just last month, Google secured a partnership to enhance Apple’s Siri voice assistant with a Gemini model, which presents an immense opportunity given Apple’s installed base of over 2.5 billion devices.
