Google Stock Takes a Hit Amid AI Spending Concerns

Google's parent company, Alphabet, saw its stock fall by more than 8% in early trading. This drop erased over $200 billion in market value after the company announced plans to greatly increase its spending on artificial intelligence (AI), despite a slowdown in revenue growth.

Many tech companies, including Google, are currently facing intense scrutiny from investors regarding their rising expenditures on AI. Concerns were amplified when Chinese startup DeepSeek disclosed last month that it managed to train an AI model for under $6 million, reportedly without having access to the best hardware available from chip supplier Nvidia.

As of midday trading, Alphabet's shares were down 7.6% at $190.70. If this trend continues, it could wipe out all of the gains made by Alphabet's stock since the beginning of the year.

CEO Sundar Pichai announced that Google plans to spend a substantial $75 billion on capital expenditures in 2025, a significant increase from $52.5 billion last year and notably higher than analyst expectations.

“If this is the new trend for Alphabet, then investors should be worried,” remarked D.A. Davidson analyst Gil Luria.

Pichai acknowledged DeepSeek's advancements, stating they had done "very, very good work" but insisted that Google's AI models are among the most efficient currently available. He defended the company’s spending plans by saying, "The cost of actually using artificial intelligence is going to keep coming down, which will make more use cases feasible. And that’s the opportunity space."

In terms of financial performance, revenue from Alphabet’s cloud-computing segment increased by 30%. However, this was a decrease from the 35% growth reported in the previous quarter and did not meet Wall Street's expectations.

Overall, Alphabet's quarterly revenue grew by 12% to $96.5 billion, marking the lowest growth rate seen since 2023.

Despite the cloud segment delivering over 30% growth for the second consecutive quarter, results fell slightly short of investor expectations, according to Wedbush analyst Dan Ives. He noted that management commentary indicated demand was exceeding available capacity during this quarter.

“The more aggressive pace of investment should alleviate capacity constraints as AI demand continues to scale,” Ives added.

Google is one of several major tech firms planning significant investments in AI infrastructure as they compete against China and each other to develop advanced AI models.

Investors are worried that DeepSeek’s efficient model could imply that US tech giants have overspent on chips and infrastructure for AI. Nonetheless, companies like Meta and Microsoft remain committed to increasing their spending, asserting that having access to data centers and advanced chips will be a key advantage in the long run.

Google, Alphabet, AI