Alphabet Inc., the parent company of Google, reported its fourth-quarter earnings for 2024 on Tuesday, which reflected both strength and volatility amid significant investments aimed at bolstering its leadership position, particularly concerning artificial intelligence (AI). While Alphabet's earnings per share of $2.15 surpassed consensus estimates of $2.12, its revenue of $96.5 billion fell slightly short of the $96.7 billion forecast, triggering concerns among investors, leading to approximately 7% decline in its stock price during after-hours trading.
CEO Sundar Pichai emphasized the company's AI-driven momentum during the earnings call, stating, "We delivered another strong quarter in Q4, driven by our leadership in AI and our unique full stack approach." Pichai indicated strong growth across multiple sectors, driven by the rapid integration of AI capabilities.
One of the notable highlights from the quarter was Alphabet’s continued strength in digital advertising, which accounted for 75% of its revenue and totaled $72.46 billion for the final three months of 2024. This figure exceeded projections of $71.66 billion and represented impressive growth from the prior quarter's earnings, where digital ads had brought in $65.85 billion.
Despite the advertising success, Alphabet's cloud computing segment faced challenges, generating $11.96 billion, which was under analysts’ expectations of $12.19 billion. This disappointment drew scrutiny amid the fierce competition presented by AI-driven entities like the Chinese startup DeepSeek. Analysts noted the increasing capital expenditures — projected at $75 billion for 2025 — as concerning. RBC Capital analyst Brad Erickson remarked, "Unexpectedly, the company provided quantitative guidance for 2025 capex at $75 billion which was significantly ahead of Street at $58.7 billion and the primary reason for the stock's sell-off after-hours. AI spending is the culprit here."
Reflecting on Alphabet’s strategy, Pichai pointed out their significant investments are pivotal to drive future growth and innovation. He stated, "We are confident about the opportunities ahead, and to accelerate our progress, we expect to invest approximately $75 billion in capital expenditures in 2025." This spend is primarily aimed at enhancing the company’s AI infrastructure and improving cloud services, which have become integral to Alphabet’s operational strategy.
During the earnings call, Pichai cited several advancements within their AI operations. Google has made considerable strides with its Gemini AI model, which now boasts over 4.4 million developers utilizing the technology, double the number from just six months prior. Pichai acknowledged the significance of such growth, particularly as AI continues to evolve and integrate how users engage with Google’s offerings.
While Alphabet's search-advertising revenue rose by 12% to $54 billion, concerns linger about the longer-term impact of competitors siphoning off market share with alternative AI offerings like OpenAI's ChatGPT. Analysts, including Evelyn Mitchell-Wolf from Emarketer, warned, "This year could be the year those advantages meaningfully erode as antitrust enforcement and open source AI models change the game." The introduction of AI Overviews on Google Search provides some reassurance, as they reportedly have increased user interaction and satisfaction.
Pichai's remarks during the earnings call revealed the company's proactive approach, referencing, "Our obsession with cost per query, I think, sets us up well both to serve billions of users across our products and on the cloud side." This optimism around AI usage reflects Alphabet's commitment to refining its offerings and maintaining its competitive edge.
Overall, Alphabet’s Q4 results reveal both the strength of its core businesses and the challenges it faces as competitive pressures mount. With ambitious spending plans and advancements like Gemini, the company aims to capitalize on the growing AI market, yet investors are wary of the costs involved. The path forward for Alphabet lies within its strategic investments and its ability to navigate the complex dynamics of the technology space as 2025 progresses.