Alphabet Stock Plunges 7% in Pre-Market: Cloud Miss and Capex Surprise

Alphabet Inc., the parent company of Google, saw its stock price plunge by 7% during Wednesday's pre-market session, following a mixed earnings report and a significant increase in capital expenditure (capex) plans for 2025. The decline in the stock price can be attributed to two specific factors that have raised concerns among investors.

Firstly, Alphabet's cloud computing division reported a 30% year-over-year (YoY) growth, reaching $11.96 billion, which fell short of market expectations of $12.19 billion. This miss, along with the deceleration in cloud business growth compared to the preceding quarter, has sparked investor concerns about the company's ability to maintain its competitive edge in the cloud services market. CFO Anat Ashkenazi attributed the lower-than-anticipated performance to capacity limitations, but investors remained skeptical about the company's ability to address these constraints and drive growth in the cloud segment.

Secondly, Alphabet announced plans to invest $75 billion in capital expenditures in 2025, marking a 29% increase over analyst projections. This significant increase in spending, primarily allocated to the construction of servers and data centers, has raised concerns among investors about the company's financial outlook and its ability to maintain profitability. CEO Sundar Pichai justified the rise in spending, emphasizing the need to expand AI capabilities to stay competitive in the tech industry. However, investors are concerned about the potential impact of this increased capex on Alphabet's short-term financial performance and the company's ability to deliver long-term growth.



The mixed earnings report and the significant increase in capital expenditure have led analysts and investors to reassess Alphabet's long-term growth prospects. While some analysts, such as Jeffrey Wlodarczak from Pivotal Research Group, maintain a "Buy" rating and reiterate their price target, others, like Gil Luria from DA Davidson, express concern about the disappointing 4Q24 earnings and the decelerating Google Cloud growth. Investors are also concerned about the significant increase in capital expenditure, which overshadows the growth in the company's lucrative search business and YouTube ad sales.

Key risks and opportunities for Alphabet include its ability to address capacity constraints in the cloud business, maintain its competitive edge in the tech industry, and navigate regulatory scrutiny in the U.S. and China. The company's increased investment in AI infrastructure also presents an opportunity to drive user satisfaction and higher usage, as seen in the use of AI Overviews in Search.

In conclusion, Alphabet's stock price decline during Wednesday's pre-market session can be attributed to the company's cloud revenue miss and the significant increase in capital expenditure plans for 2025. While analysts and investors have mixed perceptions about the company's long-term growth prospects, the key risks and opportunities for Alphabet revolve around its cloud computing growth, AI investment, regulatory scrutiny, and the integration of AI into its products. As the company navigates these challenges and opportunities, investors will closely monitor its progress and reassess their positions accordingly.