Mega capex spend leaves Alphabet vulnerable to investor wrath

Alphabet’s earnings are out, and they come at an interesting time, when the AI trade is under intense scrutiny and many US tech stocks are selling off. The headline numbers include a large beat on revenues, Q4 revenues came in at $97.23bn, vs. analyst estimates of $95.16bn. Earnings per share were $2.82, beating forecasts of $2.65. Alphabet’s gross profit margin was also very strong at 59.8%.

Alphabet’s profitability has not been hit by its massive capex spend, largely on AI, which rose to $27.85bn last quarter, bringing its total capital expenditure for 2025 to more than $91bn. The focus on this earnings report was always going to be on the forward guidance. The most surprising feature of its forward guidance is the enormous capex pledge for 2026 of $175bn to $185bn, blowing past analyst forecasts of $119.5bn.

How the market reacts to the Alphabet forecasts could determine whether the broader tech and AI sell off continues. The Nasdaq fell 1.5% on Wednesday, led by large double-digit declines for Palantir, Advanced Micro and Applovin. Alphabet’s shares have dipped in the post market and are currently down by approximately 1.5% and are extending gains as we move to the close. This suggests that the selloff in tech may not be over yet.

Alphabet’s capex pledge is huge, and on the surface could be problematic for  investors who are sensitive to AI costs. However, investors can’t see the wood for the trees at the moment. They are selling off highly profitable tech stocks, which have already seen their valuations drop in recent months. Alphabet’s strong fundamentals are on show in this  earnings report. Google’s advertising revenue was $82bn last year, $2bn more than expected, cloud revenue was also stronger than expected at $17.66bn vs. $16.19bn. The strength in advertising revenues may ease fears about Google’s capex spend because, like Meta, it can afford capex expense due to other areas of the business that are thriving.

Google’s share price has fallen 2% in the past week, and it has outperformed the Nasdaq. While Google’s AI capex spend leaves it vulnerable to the tech sell off and the enhanced scrutiny of AI, its multi stranded business model, and its strong advertising sales, may limit any downside, although a short, sharp sell off is possible.