Google's Stock Drop: The Future of Big Tech

Alphabet Shares Slide After $75 Billion AI Investment Announcement

Earnings Overview

Alphabet – Google’s parent company – saw its shares drop on Tuesday following its Q4 2024 earnings report. Despite strong financial performance, investor concerns over high AI spending drove the stock down.

Key Financial Results:

• Revenue: Increased 12% YoY to $96.5 billion
• Google Services Revenue: Rose 10% to $84.1 billion (includes Google Search and YouTube ads)
• Google Cloud Revenue: Grew 30% to $12 billion, attributed to AI infrastructure and generative AI solutions
• Net Income: Increased 28%
• Earnings Per Share (EPS): Up 31%

Despite these strong figures, Alphabet’s stock fell 8% on the day, dropping from $207.71 to $187.17. Analysts suggest this was due to investors expecting higher results than reported.

Why Did the Stock Fall?

CEO Sundar Pichai announced that Alphabet would invest approximately $75 billion in capital expenditures in 2025, significantly higher than investor expectations of $50 billion.

This substantial increase in AI investment raised concerns, as investors remain cautious about the uncertain profitability of AI ventures. The AI sector has seen rapid developments but remains volatile, making high spending a risky move in the short term.

What Are Investors Thinking?

Investor scepticism toward AI spending has grown, especially after the US equity market plunged following the release of DeepSeek.

Alphabet is not alone in its aggressive AI investments:

• Microsoft: Lost $200 billion in market value after reporting slower-than-expected growth and announcing $80 billion in AI spending this fiscal year.
• Amazon: Plans to invest $100 billion in AI, leading to a 7% drop in after-hours trading.

• Meta: Announced $40 billion in AI investments last year, initially falling 15%, but later rebounding.

  

Past trends suggest that these investments could pay off over time. However, with China’s DeepSeek advancing and Japan’s SoftBank collaborating with OpenAI on ‘Stargate’, global competition in AI is heating up.

Will Big Tech Prevail?

Despite the massive spending, returns on AI investments have been mixed. Alphabet, Meta, and Microsoft continue to pour billions into AI, but many users remain sceptical about AI products.

Key Insights from User Surveys:

• 80% of mobile users do not find new AI features like Apple Intelligence or Google’s Gemini useful (CNET survey).
• OpenAI Dominates: A study in October found that OpenAI developed 9 out of the 10 most used AI models in cloud environments.

• ChatGPT Usage Dwarfs Google AI: A 2023 study showed ChatGPT had 60x the usage of Google’s Bard (now Gemini).

  

Stock Market Reactions

Investor concerns are reflected in stock performance:

• Alphabet: -7.33%
• Meta: +5.75% (stands out as a success story without a cloud business)
• Microsoft: -0.43%
• Amazon: -1.96%

What’s Next?

While tech executives remain confident, investors will demand tangible results from AI investments in the coming months. Pressure is mounting as:

• The U.S. Department of Justice intensifies its case to break up Google.
• Trump’s tariffs add uncertainty to the market.
• New global AI competitors threaten the dominance of U.S. tech giants.

The AI space remains one of the most highly watched and volatile sectors, making it a crucial area for investors and industry watchers alike.