Aneena Alex
Shares of Alphabet (NASDAQ: GOOGL) tumbled on February 5 after the company’s fourth-quarter earnings report missed revenue expectations, fueling investor concerns over slowing cloud growth and rising AI spending.
While the Google parent beat Wall Street’s profit estimates, its ambitious $75 billion AI investment plan overshadowed the results.
As of press time, GOOGL stock is trading at $190.08, reflecting a 7% decline over the past five days. Despite this downturn, Alphabet remains up over 1% year-to-date (YTD) after briefly surpassing $200 per share on January 24 for the first time.
Google Q4 earnings breakdown
Alphabet reported $96.5 billion in revenue, slightly below the expected $96.56 billion, while earnings per share (EPS) came in at $2.15, beating estimates of $2.13 per share.
However, Google Cloud revenue fell short, posting $11.96 billion, below Wall Street’s $12.19 billion forecast.
Despite a 30% year-over-year increase in cloud revenue, the slowdown rattled investors who had been looking for stronger growth amid rising competition from Amazon Web Services (AWS) and Microsoft Azure.
In contrast, YouTube’s advertising revenue exceeded expectations, reaching $10.47 billion, while Alphabet’s core advertising revenue rose 10.6% to $72.46 billion.
Still, Meta’s (NASDAQ: META) Facebook and Instagram, along with ByteDance’s TikTok, continue to pose a growing competitive threat in the digital ad space.
AI investments raise investor concerns
The biggest factor contributing to Alphabet’s stock drop was its announcement of $75 billion in capital expenditures (CapEx) for 2025, a 29% increase above Wall Street’s estimate of $58.84 billion.
The company plans to spend between $16 billion and $18 billion in the first quarter alone, with the majority of the funds allocated to servers, followed by data centers and networking to support its AI expansion.
The massive CapEx surge, however, has left some investors uneasy about Alphabet’s ability to convert AI spending into sustainable revenue growth.
Analyst updates Google stock price target
Analysts offered mixed reactions following the earnings, with many adjusting their price targets due to concerns over rising CapEX and slowing cloud revenue growth.
Bearish concerns: High CapEx and cloud weakness
JPMorgan lowered its price target from $232 to $220, citing slightly weaker-than-expected revenue and operating income. Analysts believe high CapEx and uncertainty around margin expansion in 2025 could weigh on investor sentiment despite Search and YouTube’s strong performance.
Meanwhile, Morgan Stanley also lowered its price target to $210 from $215, warning that while Alphabet’s AI investments and product launches remain strong, proving long-term revenue growth from these initiatives remains a challenge.
“Alphabet’s GenAI-enabled product pipeline remains strong, but proving long-term incremental revenue and cash flow remains a challenge. CapEx at $75B informs AI infrastructure needs, but investors want to see monetization. We remain Overweight but lower our PT to $210.”
Morgan Stanley
Neutral to bullish outlook: AI growth potential
Despite short-term concerns, some analysts remained confident in Alphabet’s AI-driven future, maintaining Buy or Overweight ratings while adjusting their price targets.
Goldman Sachs increased its price target to $220 and reaffirmed its ‘Buy’ rating, citing strong Search and YouTube growth, even though Google Cloud underperformed due to supply constraints.
The firm cited Alphabet’s clear CapEx guidance and AI investment strategy, stating the company remains well-positioned in the evolving AI and digital media landscape.
BofA Securities believes AI Overview could significantly boost Search monetization in 2025, projecting 12-13% Search growth. The firm sees AI-driven search products as the next catalyst, reaffirming its ‘Buy’ rating with a $225 target.
Citi echoed similar sentiments, noting that Search and YouTube’s reacceleration and the expansion of AI-driven ad tools should sustain growth. While CapEx will impact free cash flow and EPS, Citi maintains a positive long-term outlook, maintaining a ‘Buy’ rating and lowering the target to $229.
Meanwhile, Raymond James also revised its price target from $190 to $205, acknowledging strong Search and YouTube revenue but raising concerns over Google Cloud’s underperformance.
The firm highlighted Alphabet’s massive CapEx projection as the biggest shock, raising questions on ROI and AI infrastructure monetization.
What’s next for Google?
As Google Cloud faces increasing competition from Microsoft and AWS and investors closely watching AI monetization efforts, the company’s next earnings report and major AI events, such as Cloud Next in April, will be critical in shaping market sentiment.
While Google’s advertising segment remains solid, the path forward will depend on how well the company balances aggressive AI spending with profitability expectations.
Featured image via Shutterstock
