Alphabet Surpasses Expectations, Signals Massive AI Investment Surge
Alphabet, the parent company of Google, has delivered a robust fourth-quarter earnings report, exceeding analyst expectations on both the top and bottom lines. The tech giant announced a significant ramp-up in its artificial intelligence (AI) spending for 2026, a move that underscores its commitment to leading the AI revolution. Despite the strong performance, the stock saw a modest dip of up to 3% in after-hours trading.
For the quarter, Alphabet reported earnings per share of $2.82, surpassing the LSEG consensus estimate of $2.63. Revenue climbed to $113.83 billion, also beating the $111.43 billion forecast. These figures reflect broad-based strength across key segments of the business.
A deeper dive into the report reveals several critical metrics:
* **Google Cloud:** This segment continues its impressive growth trajectory, posting revenue of $17.66 billion, significantly higher than the StreetAccount estimate of $16.18 billion. This performance highlights the growing demand for cloud infrastructure, particularly as businesses integrate AI solutions.
* **YouTube Advertising:** While still a substantial contributor, YouTube advertising revenue came in at $11.38 billion, falling slightly short of the $11.84 billion anticipated by analysts. Management attributed this moderation to a high comparative base from strong political ad spending in the fourth quarter of 2024.
* **Traffic Acquisition Costs (TAC):** TAC, a key expense for Google’s search business, registered at $16.59 billion, slightly above the $16.20 billion estimate. This figure is closely watched as it represents the cost of driving traffic to Google’s platforms.
Looking ahead, Alphabet signaled a substantial increase in capital expenditures for 2026, projecting a range of $175 billion to $185 billion. This forecast, with its upper end more than doubling the 2025 spend, clearly signals a strategic pivot towards aggressive investment in AI infrastructure. Alphabet had previously indicated a “significant increase” in capital expenditures for 2026 in its October earnings call.
Alphabet’s finance chief, Anat Ashkenazi, elaborated on the allocation of these significant investments, stating that the funds will be directed towards bolstering AI compute capacity for Google DeepMind, addressing robust cloud customer demand, and supporting strategic initiatives within “other bets.” Furthermore, these expenditures are intended to enhance user experiences and improve return on investment for advertisers across Google’s core services.
The company’s overall revenue saw a nearly 18% year-over-year increase, with net income surging by almost 30% to $34.46 billion compared to the previous year. Advertising revenue, the bedrock of Google’s financial success, grew by 13.5% to $82.28 billion.
Google Cloud’s outstanding performance is particularly noteworthy. Its revenue growth of nearly 48% year over year solidifies its position as a major player in the cloud computing market, a segment that is increasingly becoming the backbone for AI development and deployment. The backlog for Google’s cloud business surged by 55% sequentially and more than doubled year over year, reaching an impressive $240 billion by the end of the fourth quarter, indicating strong future revenue potential.
Alphabet and Google CEO Sundar Pichai highlighted the burgeoning success of its Gemini AI app, which now boasts over 750 million monthly active users, an increase from 650 million in the prior quarter. Pichai also emphasized the remarkable efficiency gains achieved in AI, noting a 78% reduction in Gemini serving unit costs throughout 2025 due to model optimizations and improved utilization. This focus on efficiency is crucial for scaling AI responsibly and profitably.
In contrast, Alphabet’s “Other Bets” segment, which encompasses ventures like life sciences unit Verily and self-driving car company Waymo, reported a revenue of $370 million, a 7.5% decrease year over year. The segment’s loss widened to $3.61 billion, an increase of over 200% compared to the prior year. This widening loss is largely attributable to a significant $2.1 billion stock-based compensation charge related to Waymo’s recent funding round, which valued the company at $16 billion.
Waymo concluded 2025 by completing 15 million trips across five major U.S. markets, including Austin, Atlanta, Los Angeles, Phoenix, and the San Francisco Bay Area. The company expanded its service to Miami in January, signaling continued growth and operational expansion in the autonomous vehicle space. The substantial investment in Waymo, while contributing to current losses, reflects Alphabet’s long-term vision for autonomous transportation.
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