Alphabet (GOOGL), the parent company of Google, has announced a $75 billion capital expenditure budget for 2025 to expand its AI presence. This reflects a large increase from the previous year’s $52.5 billion and is much higher than the consensus estimate of $59.73 billion. The market reacted negatively to the news, with GOOGL stock dropping 7.1% in pre-market trading today.
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The announcement followed a mixed fourth-quarter earnings report, with Alphabet missing revenue expectations. The company’s cloud revenue growth also showed signs of slowing down, raising concerns among investors about its profitability and the efficiency of capital spending.
The decline in Alphabet stock also reflects investor concerns about the company’s huge AI investments, particularly due to rising competition from Chinese AI startup DeepSeek, which recently showed potential for significant AI development at lower costs.
GOOGL CEO Defends Huge AI Investments
At the Q4 earnings call yesterday, CEO Sundar Pichai defended the capex hike, stating that it will help advance AI capabilities and integrate them into Alphabet’s core products, such as search and cloud services. Pichai highlighted the vast opportunities in the AI space and the need to stay competitive, particularly against emerging players like DeepSeek offering cost-effective AI solutions.
The company aims to use the majority of capex to build infrastructure for AI, including servers and data centers. Further, the first quarter of 2025 alone is expected to see expenditures of $16 billion to $18 billion.
Is GOOGL a Buy, Hold, or Sell?
Turning to Wall Street, GOOGL has a Moderate Buy consensus rating based on 21 Buys and eight Holds assigned in the last three months. At $218.75, the average Alphabet price target implies 5.99% upside potential. Shares of the company have gained 29.91% in the past six months.
