Google plans to increase its AI technology investments to $75 billion this year, exceeding market expectations by 29%. This has raised investor concerns about unmet cloud revenue targets and profitability.
Google's AI Development Investments
Google CEO Sundar Pichai addressed the company's significant increase in AI investments during a conference call with analysts. He noted that the Gemini family of AI models is nearly as energy-efficient as DeepSeek. Alphabet has earmarked substantial investments to support AI growth, with plans to allocate $75 billion for infrastructure development by 2025. These investments significantly enhance the company's $32.3 billion capital expenditures from 2023. Chief Financial Officer Anat Ashkenazi mentioned that most of this funding will go towards building servers and data centers.
Future of Cloud Services Amid AI Growth
AI has become a reliable revenue source for Google in recent years, with total revenue growing 12% year-over-year to $96.5 billion. While Google Cloud revenues increased by 10% to $12 billion, AI investments are highlighted as a key growth factor. However, despite positive results, Alphabet's total revenue fell short of analyst expectations, resulting in more than a 7% drop in share prices in after-hours trading.
AI Market Competition
Amid growing competition from China's DeepSeek, Pichai emphasized that Google's Gemini 2.0 Flash models are among the most efficient on the market. On January 27th, DeepSeek surprised US markets by announcing the creation of a competitive AI model developed at a significantly lower cost. They used less sophisticated hardware made by semiconductor manufacturer Nvidia, resulting in an AI model developed on a budget of just under $6 million.
Google's AI investments reflect the company's long-term strategy in advancing technology and strengthening its market position, despite challenges in cloud services and new competition.
