Alphabet Inc. (GOOGL, GOOG) saw its stock tumble by as much as 5% early Thursday following the release of its fourth quarter earnings report, which revealed capital expenditure plans that significantly exceeded analysts’ expectations. Investors are now increasingly questioning the viability and sustainability of Big Tech’s massive investments in artificial intelligence (AI) amid a highly competitive landscape.
In its earnings announcement, the parent company of Google projected that its capital expenditures for 2026 would range between $175 billion and $185 billion, nearly double the $91.4 billion it spent in 2025. Analysts had forecasted a much lower spending figure of around $120 billion for this year.
Concerns have been mounting among investors regarding the return on the billions being allocated to AI technologies by major players in the sector, including Microsoft (MSFT), Meta (META), and Amazon (AMZN). Collectively, these companies are expected to invest close to $500 billion in AI this year.
Alphabet’s Chief Financial Officer, Anat Ashkenazi, addressed these concerns during a call with analysts, stating that the increased spending in 2026 will be directed toward enhancing its AI computing infrastructure. This initiative aims to support the development of advanced AI models and meet growing demand for its Cloud and Services segments. “The investments that we’ve made in AI — it’s already delivering results across the business,” Ashkenazi remarked, underscoring the positive impact on Google Cloud, which experienced a remarkable 48% year-over-year revenue increase to $17.7 billion for the fourth quarter, outpacing analysts’ expectations of $16.2 billion.
Despite the stock’s decline, Alphabet’s overall fourth quarter financial results exceeded Wall Street forecasts. Revenues rose 18% to $113.8 billion compared to the same quarter last year, surpassing the projected $111.4 billion. Earnings per share increased to $2.82, up from $2.15 in the previous year, also exceeding the anticipated $2.65.
Revenue from Google Services, which includes advertising from Search and YouTube, grew by a more modest 14% to reach $95.9 billion, exceeding the $94.9 billion projected by Bloomberg consensus estimates. Alphabet’s CEO, Sundar Pichai, highlighted that AI advancements have positively influenced Search revenue, as users engage with Google’s AI tool.
Since the release of its last earnings report, Alphabet’s stock had surged more than 20%, buoyed by the company’s strategic partnerships in AI with firms such as Meta, Anthropic (ANTH.PVT), and OpenAI (OPAI.PVT). In contrast, the broader group of Big Tech stocks, often referred to as the “Magnificent Seven,” has collectively dropped nearly 5% during the same period, with Microsoft shares experiencing a significant 23% decline.
The debut of Google’s Gemini 3 AI model, which outperformed rival models in benchmark tests, has further solidified Alphabet’s standing in the competitive AI landscape. The launch prompted OpenAI to declare a “code red,” indicating the heightened stakes in the AI race. Pichai noted that the Gemini app has achieved over 750 million monthly active users, indicating robust user engagement.
RBC Capital Markets analyst Brad Erickson remarked in a note to clients that the strong performance of the Gemini app and the surge in Google Cloud’s fourth quarter revenue serve as compelling evidence to justify Alphabet’s increased spending in 2026.
Looking ahead, Alphabet’s strategic investments in AI and cloud computing infrastructure underscore its commitment to maintaining a leading position in the technology sector, even as the landscape becomes increasingly competitive. As the company navigates this pivotal period, the focus will likely be on how these investments translate into sustained growth and profitability.
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