Alphabet resets the bar for AI infrastructure spending
Sundar Pichai, CEO of Alphabet Inc., during the Bloomberg Tech conference in San Francisco, California, USA, on Wednesday, June 4, 2025.
David Paul Morris | Bloomberg | Getty Images
google parent Alphabet It beat Wall Street expectations for the fourth quarter, but a new, higher bar for expected spending on AI infrastructure dampened excitement.
Despite beating expectations for revenue, earnings per share and cloud, shares of Google’s parent company continued to fall in extended trading Wednesday, showing Wall Street remains sensitive to AI spending.
Alphabet said it expects 2026 capital expenditures to be in the range of $175 billion to $185 billion. The high end of this forecast would more than double 2025 capex.
Alphabet is resetting the year’s expectations for how it will spend in 2026 with the projection and testing its support for Wall Street. The company said in October that it expected a “significant increase” in capex in 2026, but the forecasts shared Wednesday beat those of its hyperscaler peers.
In last week’s quarterly report, Microsoft He didn’t offer a specific forecast for the year but said capex will “reduce sequentially” this quarter after the company recently reported spending $37.5 billion. Meta It said it expects to spend between $115 billion and $135 billion in 2026, which at the top end would be nearly double last year’s figure of $72.2 billion.
Amazon The results will be announced on Thursday. Analysts expect the company’s 2025 capital expenditures to close at about $124.5 billion, with that figure rising 18% to $146.6 billion this year, according to FactSet.
Alphabet’s increase in spending comes at a time when Wall Street is particularly sensitive to extra AI spending.
Despite positive tech earnings, the software industry as a whole has lost 30% of its value in the past three months, CNBC’s Michael Santoli said. This is due to concerns that AI tools will disrupt existing software tools and make higher spending riskier. To this point, Alphabet has largely escaped major stock moves, especially after being one of 2025’s best performers.
But as Wall Street balks at this lavish spending, tech companies are racing to build more infrastructure to meet customer demand for AI services.
The backlog of Google’s cloud unit, which hosts most of its artificial intelligence products and services, reached $240 billion at the end of the fourth quarter, up 55% sequentially and more than doubling year over year, Alphabet finance chief Anat Ashkenazi told analysts on Wednesday. Google saw a nearly 48% increase in cloud revenue compared to a year ago.
Ashkenazi said planned 2026 capital expenditures will be aimed at investing in AI computing capacity for Google DeepMind and meeting “significant cloud customer demand, as well as strategic investments in other bets.”
It added that it will also be used to “improve user experience and increase return on investment for advertisers across Google services.”
Ashkenazi explained how Alphabet is using its capex in 2025, which could signal how the company might invest this year.
“The vast majority of our investments are invested in technical infrastructure, with approximately 60% of this investment in servers and 40% in data centers and network equipment,” Ashkenazi said. he said.
Amid announcing a surge in capex, executives on Wednesday’s call exaggerated AI’s gains in the quarter.
Google’s flagship artificial intelligence application Gemini now has 750 million monthly active users, up from 650 million last quarter, executives said. Alphabet CEO Sundar Pichai said the company Apple It reiterated that it plans to overhaul its Siri virtual assistant using Gemini AI models, and that the iPhone maker has chosen Google as its preferred cloud provider.
When asked what keeps executives up at night, Pichai said “computing capacity.”
“Whether it’s power, land, supply chain constraints, how can you meet this extraordinary demand right now?” he said.
In December, Alphabet agreed to acquire data center company Intersect for $4.75 billion in cash and debt assumption.
Pichai’s comments echo CNBC’s report that showed the company was under expensive pressure to build quickly.
Google’s AI infrastructure boss Amin Vahdat told employees that the company must double its service capacity every six months to meet demand for AI services, CNBC reported in November.
“Competition in artificial intelligence infrastructure is the most critical and also the most expensive part of the artificial intelligence race,” Vahdat said at the time.
