AI: Google's Strong Quarter & Doubling AI Capex. RTZ #989

Google kept pace with its big tech peers, reporting a strong year-end quarter and annual results relative to expectations. And of course, guiding to AI capex investments to new highs for 2026 and beyond.

Amongst many milestones, two stood out: annual revenue surpassing $400 billion for the first time with a $132 billion in profits, and its AI capex for Google Cloud and core businesses projected to reach $175-$185 billion, vs $92 billion in 2025.

Also notable was Google’s Gemini app surpassing 750 million monthly active users, closer to rival OpenAI’s reported 900 million on the same metric.

As the Information pithily put it:

“Sundar Pichai, take a bow. Google parent Alphabet delivered some red-hot fourth-quarter numbers on Wednesday, a sign that—like its fellow digital ad giant, Meta Platforms—it is enjoying the fruits of its big investment in AI. Alphabet reported both an acceleration in Google’s search revenue growth to nearly 17%, from 15% in the third quarter, and a 14 percentage point lift in Google Cloud’s revenue growth to 48%. Anyone who suggested during Google’s struggles with AI a couple of years ago that Pichai should step aside—that would be me—looks downright stupid now.”

Some of us had more confidence on Google turning its AI ship around for a few years now.

The stock took a small dip, after posting a 65% gain last year, driven in large part by Alphabet/Google’s ‘come from behind’ AI execution. Especially vs OpenAI and other AI peers with Google Gemini, and a spate of other AI related accomplishments. OpenAI in particular is by all accounts still in an internal ‘Code Red’, ramping to catch up with Google Gemini’s capabilities and distribution.

Alphabet/Google is also hitting all cylinders on core businesses like Google Cloud, YouTube, Waymo and a range of other businesses.

The WSJ lay it the high points well in “Google to Double Spending as Earnings Beat Wall Street Expectations”, with the following takeaways:

• “Alphabet’s fourth-quarter revenue jumped 18%, with net income rising 30% to $34.5 billion, driven by digital advertising and cloud computing.”

• “Google plans to increase capital expenditures to $175 billion to $185 billion in 2026, up from $91 billion to $93 billion in 2025, to develop AI models and data centers.”

• “Google’s cloud-division revenue increased 48% to nearly $18 billion in the fourth quarter.”

  

“Artificial intelligence is supercharging Google’s advertising and cloud-computing businesses, and the company is ramping up spending to unheard-of levels in its quest to win the AI race.”

“Google parent Alphabet GOOGL reported an 18% jump in fourth-quarter revenue and revealed plans to roughly double its spending on data centers and other capital projects.”

“Sales exceeded analysts’ expectations at nearly $114 billion, driven by growth in the company’s digital-advertising and cloud-computing units. Net income was $34.5 billion, a 30% increase compared with the same period a year earlier.”

“The company reported a record $403 billion in sales in 2025—the first time annual revenue surpassed $400 billion. Profit reached about $132 billion last year.”

Then the other side of the ledger, rising AI capex on AI Data Centers and Power, to achieve maximum AI Scale:

“Google, like other tech companies, is spending tens of billions of dollars to develop AI models and build the data centers needed to train and run them. Data-center development has become increasingly difficult as tech companies face constraints in finding or building electricity supplies to run them.”

“The company lifted estimates for capital expenditures this year to $175 billion to $185 billion, up from $91 billion to $93 billion in 2025.”

“Maybe the top question is definitely around compute capacity,” said Chief Executive Sundar Pichai. “How do you ramp up to meet this extraordinary demand for this moment, get our investments right for the long term, and do it all in a way that we are driving efficiencies?”

Google Cloud continues to make headway against the larger Amazon AWS and Microsoft Azure:

“Google’s cloud division, which sells computing power to data centers, is growing significantly as a result of the race to develop AI. The cloud unit had nearly $18 billion in fourth-quarter revenue, a 48% increase from the same period in 2024.”

“Microsoft, Meta Platforms and Apple reported quarterly results last week. Amazon reports earnings Thursday.”

I discussed Microsoft, Meta and Apple’s AI postures a few days ago.

“Google last year pulled ahead in the AI race with the November launch of Gemini 3, the most powerful version of its AI model and chatbot. The company said its Gemini app now has 750 million monthly users, up from 650 million in October.”

“Shares in Alphabet rose 65% last year, and the company last month joined Nvidia in reaching a $4 trillion valuation.”

In particular, Google continues strong progress on AI Search, an early area of investor concerns vs OpenAI:

“Google has been working to incorporate AI tools into a number of its products, including its classic search engine. The company last year rolled out “AI Mode,” which searches and responds in a chatbot-like exchange with fewer links.”

“The Google search division faces competition from AI startups including ChatGPT, Anthropic and Perplexity. Still, Google reported about $63 billion in quarterly search revenue.”

From a market perspective, the WSJ summed it up this way in “Google Leans Hard Into Its AI-Winner Status”:

“Ad and cloud growth acceleration justify the recent surge in Alphabet’s stock, but the blowout capex forecast still takes one’s breath away.”

“The motto for the artificial-intelligence race today should be if you’ve got it, spend it.”

“That is a message that Meta Platforms META took to heart during its fourth-quarter report last week, when the Facebook and Instagram parent announced plans to spend up to $135 billion on capital expenditures this year, compared with about $72 billion last year. Google managed to up the ante Wednesday with its own plan to spend as much as $185 billion this year, which would be about double last year’s outlay.”

And they didn’t even discuss Elon Musk with its latest bid to merge xAI with SpaceX to create a $1.25 private behemoth, with an IPO targeted by his birthday in June. Complete with an expedited bid to add it to major Index markets. Or a possible merger with public Tesla with its $1.6 trillion market cap.

The name of the game in this AI Tech Wave, is financial scale, be it in revenues, profits and/or market caps.

That’s what allows ‘on-again, off-again’ permission from Wall Street to continue. Enabling maximum leaning into unprecedented amounts of AI investments for now. Stay tuned.

(NOTE: The discussions here are for information purposes only, and not meant as investment advice at any time. Thanks for joining us here)