Alphabet’s Two-Headed Challenge: Cloud Miss and AI Rivals
An Altbridge AI Spotlight
At Altbridge AI, we analyze through earnings reports, transcripts, and endless data so you don’t have to. This is the first in a series of pieces we’ll share as new insights come in from our AI Analyst.
Today, we’re cutting through the noise around Alphabet’s Q4 earnings to focus on two big storylines:
Why Cloud revenue fell short of lofty expectations.
Whether AI rivals like OpenAI, Perplexity and DeepSeek really threaten Google’s search business.
Then, we’ll briefly round up everything else at the end. Let’s dive in!
1) The Cloud Revenue Stumble — What Happened?
In Q4, Google Cloud posted 30% year-over-year growth, impressive for most companies but below Wall Street’s hopes. That shortfall triggered a 9% after-hours drop in Alphabet’s stock. Is the problem weakening demand?
Capacity Constraints, Not Slowing Demand. Management blamed physical limits on data center space. Customers want more Google Cloud AI solutions now, but Google lacks sufficient compute capacity — hence the “slowing” growth.
Enter the $75B CapEx Bombshell. Soon after, Alphabet announced a huge $75 billion capital-spending plan for 2025, aimed at scaling new data centers, subsea cables, and advanced TPUs. In other words: short-term profit pain, long-term capacity fix.
Short-Term Pain, Long-Term Gain? Critics wonder if $75B is overkill. Yet historically, Google invests big when it sees massive upside. The real question: Will these data centers come online fast enough to capture AI workloads?
2) The AI Threat to Search — Is Google Vulnerable?
Beyond Cloud, a second storyline spooking investors is that AI chatbots (Perplexity, ChatGPT, DeepSeek, etc.) may disrupt Google’s core search-and-ads model.
Why People Worry. AI-based chat can bypass the typical “list-of-links” search results, cutting out the ad clicks behind Google’s revenue engine.
The Gemini Card. Enter Google’s Gemini 2.0 model, already weaving itself into search. Over a billion users now see AI “Overviews” in Search. That quick adoption shows Google is serious about defending its turf.
Reality Check: Slow Erosion so Far. Has ChatGPT made a dent in Google usage? Paid clicks for Google Search actually rose. Sure, these AI rivals matter, but no game-changing shift has appeared, yet.
Rounding Up the Rest
YouTube. Notched a 14% jump, helped by U.S. election spend. That tailwind will fade soon, but YouTube’s scale is enormous.
Waymo. Over 4 million paid robotaxi rides in 2024, with international pilots ahead. The question: Can Alphabet fund both Waymo and those huge AI data centers simultaneously?
The New CapEx World. That $75B overshadowed Q4 announcements. Skeptics see overspending, but Google’s track record suggests big bets can expand its ecosystem faster than smaller rivals.
Our Perspective
We see Alphabet’s dip as typical near-term market overreaction. Cloud’s “miss” largely stems from maxed-out capacity, which can be fixed (albeit at a cost). Meanwhile, “AI threats” may be manageable if Gemini 2.0 keeps pace. Historically, Alphabet’s major expansions have often paid off, though short-term earnings bumps can spook investors.
Closing Thoughts
Yes, the market is anxious about Cloud’s shortfall and mega-spending on AI infrastructure. But Alphabet’s giant ad revenue base and proven ability to adapt could make this more of a pause than a pivot away from the company. Thanks for reading, and we’ll keep you posted as soon as our AI Analyst sees new data.
Disclaimer: This commentary is for informational purposes only and is not financial advice. Always do your own due diligence or consult a professional before making investment decisions.