Alphabet Faces Scrutiny Over AI Spending as Google Cloud Growth Slows
Concerns Grow Over Ad Market Outlook Amid Election Spending and Economic Uncertainty
Alphabet is expected to face investor scrutiny over its significant investment in artificial intelligence (AI) when it reports its earnings on Tuesday. The Google parent company is likely to report slower revenue growth for the holiday quarter, with decelerating growth in its advertising and cloud businesses.
Alphabet’s capital expenditure for 2024 is estimated at $50 billion, with more spending planned for 2025 to support its cloud expansion and AI-driven search features. The company is striving to defend its market share and attract more ad revenue amid competition from low-cost AI models launched by Chinese startup DeepSeek, which have the potential to trigger a price war in the industry.
Despite challenges, Alphabet continues to invest heavily in AI, a strategy also embraced by Microsoft and Meta Platforms. Executives from these companies have defended their AI spending plans as essential for staying competitive in the rapidly evolving tech landscape.
However, Alphabet’s cloud business growth is expected to slow in the fourth quarter. Revenue from Google Cloud is anticipated to rise by 32%, down from the 35% growth seen in the third quarter. Analysts have raised concerns over whether the AI-driven cloud growth seen in recent months will sustain, particularly as Microsoft’s Azure cloud computing growth also slowed, due in part to the prioritization of AI services over core cloud offerings.
Alphabet’s overall revenue is forecasted to grow 11.9% to $96.6 billion, slower than previous quarters, reflecting the broader challenges facing its search and cloud units. The company is also under pressure to maintain its dominant position in the search advertising market, particularly with growing competition from e-commerce giant Amazon and social media platform TikTok.
While the company is expected to benefit from increased political ad spending in the lead-up to the U.S. Presidential elections, concerns remain about the overall outlook for the ad market, as economic uncertainty and the threat of global tariffs persist.
Read more: Google signs deal to buy carbon removal credits from India
Investors will be closely watching Alphabet’s earnings report to assess whether the company can balance its substantial AI investments with the decelerating growth in its core cloud and advertising businesses.
