Alphabet shares fall 7% on revenue miss, heightened AI investments

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Alphabet shares fall 7% on revenue miss, heightened AI investments

CEO of Alphabet and

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Sundar Pichai in Warsaw, Poland on March 29, 2022.

Mateusz Wlodarczyk | Nurphoto | Getty Images

Alphabet shares dropped more than 7% in the premarket Wednesday after the search giant fell short of Wall Street’s fourth-quarter revenue expectations and announced big spending plans for its ongoing artificial intelligence buildout.

The company topped earnings estimates by 2 cents per share. Revenue came in at $96.47 billion, behind the $96.56 billion expected by LSEG. Alphabet’s revenue grew 12% overall from a year ago, while its

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advertising business, search business and services segment slowed year over year.

Alphabet also said it plans to spend $75 billion on capital expenditures as it builds out its AI offerings and races against megacap rivals to build out data centers and new infrastructure. The figure was much higher than the $58.84 billion expected by Wall Street analysts, according to FactSet.

Finance chief Anat Ashkenazi said the higher expenses will help “support the growth of our business across

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Services,

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Cloud and

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DeepMind.” She also said the spending will go toward “technical infrastructure, primarily for servers, followed by data centers and networking.”

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The company expects capital expenditures to range between $16 billion and $18 billion. That was higher than the $14.3 billion estimate from FactSet.

JPMorgan analyst Doug Anmuth highlighted costs, capex and cloud revenue as the “culprits” for the stock’s post-earnings performance. Bernstein’s Mark Shmulik also noted that this is the third quarter that the stock move connects to

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’s cloud segment.

“If digital ad growth is akin to a long drive competition, then

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would be sitting comfortably here with strong Search and

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bombs down the fairway,” Shmulik said.

“But as the game shifts to the AI putting green, there’s little room for error with a slight cloud miss, a whopping CAPEX guide up to $75B for 2025, and lack of actionable operating leverage commentary leaves

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3- putting for bogey,” he added.

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