A lphabet's fourth-quarter earnings and revenue exceeded Wall Street's projections. Its cloud unit outperformed expectations, with sales increasing by roughly 48% year over year. Overall, the company's fourth-quarter financial performance exceeded Wall Street expectations on both the top and bottom lines. Fourth-quarter revenue increased 18% to $113.8 billion from the previous year, exceeding analyst expectations of $111.4 billion. The computer giant's earnings per share increased to $2.82 from $2.15 the prior year, exceeding the $2.65 forecast.
According to LSEG data, the company's overall revenue for the quarter was $113.83 billion, which above analyst expectations of $111.43 billion. Adjusted profit per share of $2.82 also exceeded expectations of $2.63. Alphabet shares were erratic in after-hours trading, plunging 6% before recovering most of their losses to trade down only around 1%, as investors balanced the increase in spending against rising revenue and profit, both of which above forecasts in the December quarter.
Alphabet (GOOGL, GOOG) stock plummeted as much as 7% after the bell Wednesday before recovering as the internet behemoth's capital spending projection for 2026 exceeded analyst expectations. Investors have expressed anxiety over whether Big Tech hyperscalers' billions of dollars in AI expenditures will pay off. Alphabet stock fell more than 2% Wednesday evening.
Why This News Matters:
Alphabet just sent a clear message: spending on AI isn't just a theory anymore; it's already making a difference in the real world. The company's revenue and profits were better than expected, thanks to a great quarter for its cloud business, which grew at its fastest rate in years. That performance backs up Alphabet's bold AI plan and shows that it's beginning to turn big investments in infrastructure into real results. The market's choppy reaction also shows that investors are getting more worried about how expensive the AI arms race is getting, even though the fundamentals are still strong.
Capital Expenditure Surge and Investor Concerns
Capital expenditure for 2026 is expected to range between $175 billion and $185 billion, with capex more than doubling from the previous year. The massive gain appears to have alarmed investors, as Alphabet shares plummeted as much as 3% during extended trading. Alphabet (GOOGL.O), opens new tab, said on Wednesday that capital expenditure could double this year, marking yet another strong spending ramp-up by the Google parent as it increases expenditures to alleviate compute capacity bottlenecks and advance in the AI race.
Alphabet officials stated that investments in AI processing power capacity - servers, data centers, and networking equipment - were critical to the company's objectives to increase capital spending to $175 billion to $185 billion this year, up from $91.45 billion in 2025. According to LSEG statistics, analysts projected it to spend an average of $115.26 billion this year.
In its fourth-quarter earnings release, Alphabet, Google's parent company, forecasted 2026 capital expenditures of $180 billion at the midpoint, much exceeding the $119.5 billion expected by Bloomberg analysts. That would be about quadruple the $91 billion in capex that Alphabet reported spending in 2025 on servers and data center infrastructure to enable AI.
On a call with analysts following the firm's earnings announcement, Alphabet CFO Anat Ashkenazi stated that the increased expenditure in 2026 would be directed toward AI computer infrastructure as the company seeks to create frontier AI models and meet demand for its Cloud and Services segments. According to Ashkenazi, Alphabet would make its 2026 investments "in a way that maintains a very healthy financial position for the organization."
AI Investments, Strategy, and Executive Commentary
Alphabet and its Big Tech rivals are anticipated to invest more than $500 billion in AI this year. Meta (META.O) increased capital investment for AI development by 73% this year, while Microsoft (MSFT.O) recorded record quarterly capital spending.
The fast increase in spending comes as investors become increasingly anxious about the payoffs from AI investments. However, Google has made significant headway in its AI efforts, and its stock has increased by 76% since the beginning of 2025.
"Our AI investments and infrastructure are driving revenue and growth across the board," CEO Sundar Pichai told analysts on a conference call on Wednesday. "We've been supply-constrained, even as we ramp up our capacity," he added. "Obviously, our capex spends this year is an eye towards the future." Pichai predicted that Alphabet would continue to suffer capacity challenges this year. "The investments that we've made in AI — it's already delivering results across the business," Ashkenazi told reporters. The CEO cited Google Cloud's rise as a result of high demand for its AI solutions.
Google Cloud Performance and Analyst Reactions
The company's cloud division, in particular, posted excellent growth in the fourth quarter ended December, rising 48% to $17.7 billion, exceeding analyst estimates. This marked the fastest rate of increase in more than four years. The segment's fourth-quarter revenue increased 48% from the previous year to $17.7 billion, exceeding analyst expectations of $16.2 billion. According to Gil Luria, a D.A. Davidson analyst, the cloud division's growth exceeded that of Microsoft Azure for the first time in years, justifying the parent company's capex increase. Ethan Feller, a stock strategist at Zacks Investment Research, agrees that cloud's 48% growth with rapidly expanding margins is no longer a "show me" story. "Google has established itself as a legitimate hyperscaler alongside Amazon and Microsoft, with AI workloads driving real enterprise demand."
On previous earnings calls, Alphabet officials cited the cloud as proof of AI-driven revenue, but the most recent quarter indicated a renewed confidence in messaging about growth from other aspects of the business, such as the search engine, which has been enhanced by AI integration.
Gemini AI Momentum and Strategic Deals
The November rollout of Google's Gemini 3 AI model changed the narrative surrounding the company's status as an AI laggard. The positive reception catapulted the business into the AI arms race, prompting rival OpenAI to declare an internal "code red" to encourage teams to expedite work.
The release of Google's Gemini 3 AI model — which outscored competing models on benchmark tests and prompted rival OpenAI to proclaim a "code red" — as well as the news of a landmark collaboration with Apple, solidified Alphabet's reputation as an AI winner and pushed shares higher.
Google's enterprise-grade Gemini model has sold 8 million paying seats to 2,800 customers, according to Pichai. Last month, Google announced one of its largest collaborations to date: a cloud relationship with Apple (AAPL.O), which opens a new tab to power the iPhone maker's AI capabilities with Gemini models. According to Pichai, the company's Gemini AI assistant app now has over 750 million monthly users, an increase of 100 million since November.
"The launch of Gemini 3 was a major milestone and we have great momentum," Pichai acknowledged. He mentioned that the Gemini app now has over 750 million monthly active users. Daily requests in AI Mode, a chatbot-like feature in the native search engine, have also increased since its inception. According to Philipp Schindler, Google's chief business officer, Gemini has enabled the advertising unit deliver ads on long, complex search queries that were previously difficult to monetise.
Broader Tech, AI Stocks, and Market Performance
This week's artificial intelligence stocks have performed poorly. Shares of Advanced Micro Devices fell 17.3% during normal trade after the company issued a dismal first-quarter outlook. Other AI-related names, including Broadcom and Oracle, have also fallen. The tech-heavy Nasdaq Composite fell 1.51%, while the S&P 500 fell 0.51%, marking the fifth negative session in six. However, the Dow Jones Industrial Average increased by 0.53%, boosted by Amgen and Honeywell.
Alphabet stock has risen by more than 20% since its last earnings report, which showed the tech behemoth beginning to gain from a flurry of AI deals with Meta (META), Anthropic (ANTH.PVT), and OpenAI (OPAI.PVT) involving its Cloud unit. At the same time, the larger "Magnificent Seven" group of Big Tech stocks has down roughly 5% in that time, headed by a 23% loss in Microsoft (MSFT) shares. RBC Capital Markets analyst Brad Erickson wrote in a note to clients on Wednesday that the Gemini app's progress and the jump in fourth-quarter Google Cloud revenue were "plenty good as proof points which warrant the higher spend" by Alphabet in 2026.
