Just when I thought I’d grown immune to seeing huge numbers attached to the artificial intelligence business, Alphabet Inc. comes along with this:
“To meet customer demand and capitalize on the growing opportunities we have ahead of us, our 2026 CapEx investments are anticipated to be in the range of $175 to $185 billion.”
$185 billion! Analysts had been expecting something more like $119.5 billion, according to Bloomberg consensus data, which in itself would have been about a 30% increase from 2025. Now investors are being asked to swallow a potential spending increase of more than double.
At first, it seemed as if perhaps they wouldn’t. The initial reaction to the projections sent shares down more than 7% in after-hours trading in what looked for a moment like a repeat of Microsoft Corp.’s tricky earnings last week, when solid performance wasn’t enough to offset rising costs for the company’s AI build-out — its shares are down 14% over the past five days.
But as investors parsed the rest of the Google picture, their pessimism subsided. Shares retraced their losses and actually posted gains before settling a little lower later.
This was thanks to a final quarter of the year that brought Alphabet a beat on overall revenue, profits, YouTube ads and cloud computing. But what really helped soften the blow of the capex increase were the metrics that pointed to Google’s increasingly formidable position in AI.
As the company moves to integrate its Gemini chatbot into more products like Gmail and the Chrome browser, it is rapidly gaining popularity and eating away at ChatGPT’s market lead. It added 100 million monthly active users quarter-on-quarter, with Chief Executive Officer Sundar Pichai saying the company had also seen a “sharp increase in engagement per user.”
The company has turned what look like a mortal threat — people using AI instead of Google search — into an “expansionary moment” for the core product, Pichai said, with its search business seeing “more usage than ever before.” Google Search revenue was up 17% year-on-year. The company’s recent agreement to provide the technical backbone for Apple Inc.’s redesigned Siri seems set to add to those gains in the not too distant future, Bloomberg Intelligence analysts remarked.
Google Cloud, through which Google sells its AI capabilities and hardware to other companies, grew 48% year-on-year. That extended its run as the fastest growing of the three main providers, having been viewed for a long time as a third player behind Amazon.com Inc. and Microsoft. This success has been aided by its yearlong investment in its own AI chips, reducing its reliance on expensive and scarce hardware from Nvidia. Its cloud backlog — future agreements for computing power — grew 55% year on year, an increase driven by “multiple customers,” the company said. (Last week, Microsoft said 45% of its backlog was from just one client, OpenAI.)
“Capex spend this year is an eye towards the future,” Pichai told investors on Wednesday evening. “I expect the demand we are seeing across the board, for Google DeepMind as well as for cloud, I think is exceptionally strong.” It certainly appears that way. All of this has given Pichai just enough latitude to make his pitch, which is: We’re seeing results and now it’s really time to go gung-ho. At the rate things are going, this time next year $185 billion might look quaint.
A message from Advisor Perspectives and VettaFi: Discover something new! Click here to register for our upcoming webcasts.
Bloomberg News provided this article. For more articles like this please visit
bloomberg.com.
Read more articles by Dave Lee
