Alphabet's Stock Drops 6.94% Despite 14% Revenue Growth as Google Cloud Disappoints

On February 5, Alphabet Inc., the parent company of Google, faced a challenging day as its Class C shares (GOOG) saw a significant decline, dropping by 6.94%. This downturn followed the release of Alphabet's latest financial results.

Alphabet reported revenue of $350 billion for 2024, marking a 14% growth compared to the $307.4 billion from the previous year. A key highlight of the financial report was the performance of Google Cloud, which reported fourth-quarter revenue of $11.95 billion, a 30% increase from the same period the previous year with $9.192 billion. Despite the robust revenue growth, Google Cloud's performance fell short of market expectations, contributing to the post-earnings drop in Alphabet's stock value of over 7%.

During the earnings call, CEO Sundar Pichai emphasized the company's commitment to its artificial intelligence endeavors. He highlighted the progress made with DeepSeek and praised the collaborative effort, stating it is the result of a remarkable team. Pichai expressed confidence in the Gemini model, lauding its industry-leading metrics in cost, performance, and low latency. He illustrated Gemini 2.0 Flash Thinking model as one of the most efficient, due in large part to Alphabet's advantages in full-stack development and optimizing per-query costs.

Reflecting on the company's growth trajectory over recent years, Pichai noted the strategic increase in expenditures for model inference and training, citing substantial returns on these investments. Looking forward, Alphabet plans to bolster its capital expenditures to $75 billion this year, a 42% increase aimed at accelerating its AI initiatives. This investment underscores the belief that more affordable AI technology will drive greater user demand, especially given Alphabet's extensive existing user base.

Pichai's optimistic view on AI includes the potential to unlock extraordinary use cases by continually reducing actual utilization costs, thus making more applications feasible. As a tech giant, Alphabet is poised to leverage its capabilities in the dynamic AI landscape, although the ultimate success of these ambitious investments remains to be seen.