Capital expenditure outlook rattles investors
Alphabet shares dropped as much as 5% early Thursday after the company revealed capital spending plans that significantly exceeded market expectations. The sharp reaction reflected growing investor unease over the scale and durability of artificial intelligence investments being made across the technology sector.
In its fourth-quarter earnings report, the Google parent said capital expenditures in 2026 are expected to range between $175 billion and $185 billion, nearly double the $91.4 billion invested in 2025. Analysts had been forecasting spending closer to $120 billion.
AI arms race intensifies among hyperscalers
The announcement has revived broader concerns about whether rising AI budgets will translate into proportional financial returns. Major technology groups are collectively expected to invest around $500 billion in AI this year, as companies compete to build computing infrastructure and develop advanced models.
Alphabet’s chief financial officer said the increase will be directed primarily toward AI-focused computing capacity, supporting development of next-generation models and meeting growing demand across cloud and services businesses.
Strong cloud growth offsets spending anxiety
Management emphasized that AI investments are already contributing meaningfully to performance. Google Cloud posted fourth-quarter revenue growth of 48% year over year, reaching $17.7 billion, well ahead of consensus expectations of $16.2 billion.
The company reiterated that the elevated investment level would be executed while maintaining a strong balance sheet, signaling confidence in its ability to fund expansion without compromising financial stability.
Quarterly results beat market expectations
Despite the share price decline, Alphabet’s overall financial results exceeded Wall Street forecasts. Fourth-quarter revenue rose 18% from a year earlier to $113.8 billion, surpassing estimates of $111.4 billion.
Earnings per share increased to $2.82 from $2.15 in the prior year, beating projections of $2.65. Revenue from core services, including advertising tied to Search and YouTube, climbed 14% to $95.9 billion, modestly above expectations.
AI-driven engagement supports core products
Alphabet’s chief executive highlighted the role of AI in driving engagement and revenue in Search, pointing to increased usage of the company’s AI-enhanced tools. He also underscored momentum from recent AI developments and partnerships that have strengthened the cloud business.
The Gemini application now has more than 750 million monthly active users, reinforcing Alphabet’s position as a leading player in consumer-facing AI products.
Momentum contrasts with broader tech weakness
Alphabet shares had gained more than 20% since the previous earnings release, outperforming much of the large-cap technology sector. Over the same period, several major peers have come under pressure, reflecting a more cautious market stance toward prolonged investment cycles.
Analysts said the surge in cloud revenue and adoption of Gemini provide sufficient evidence to justify higher capital spending, even as investors debate how quickly large AI investments will translate into sustained earnings growth.
