Alphabet will face investor scrutiny over its massive spending on AI when it reports earnings on Tuesday, as revenue growth at the Google parent likely slowed in the holiday quarter due to a slowdown in its advertising and cloud businesses.
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Like other US technology heavyweights, Alphabet faces new scrutiny on its capital expenditure after Chinese start-up DeepSeek last month launched low-cost AI models that threaten to push the AI industry into a price war.
Alphabet’s capital expenditure is estimated to have been US$50 billion for last year, according to LSEG, with more planned for 2025 to support its cloud expansion and AI-driven search features, including summaries, which are vital to defending its market share and attracting more ad revenue.
Microsoft and Meta Platforms executives defended their hefty AI spending plans last week, saying they were crucial to staying ahead in the new field.
Meanwhile, Google Cloud growth is expected to decelerate in the fourth quarter amid high expectations for the segment.
“Although (the cloud unit’s) rate of growth is expected to slow, elevated investment is expected to continue, but efficiency gains have so far kept profits buoyant. Sustaining this balancing act will be a critical and investors will want to see evidence of this,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.
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