Cloud Slowdown Knocks Google Sales; Alphabet Stock Slides

Alphabet Inc.'s (GOOGL) stock took a hit on Thursday, February 7, 2025, following its fourth-quarter earnings report, which fell short of market expectations. The company's shares dropped by more than 7% in after-hours trading, marking a significant pullback from record highs. The slowdown in Google Cloud's growth and a substantial increase in capital expenditures (capex) for FY25 contributed to the selloff.

Google Cloud's revenue growth slowed to 30% in the fourth quarter, down from 35% in the previous quarter, primarily due to capacity constraints. The segment's revenue of $12.0 billion was slightly below estimates, with analysts expecting around $12.2 billion on average. The company plans a 43% year-over-year increase in capex for FY25, to $75 billion, with a significant portion allocated to servers and data centers optimized for AI applications. This move raises questions about the cost-effectiveness of such investments, especially in light of China's DeepSeek AI model, which was developed at a significantly lower cost.

Alphabet's consolidated revenue increased by 12% to $96.47 billion, while profit rose by around 28% year-over-year to $26.54 billion. However, the company's share price dropped by 3.29% on Friday, February 8, 2025, closing at $105.22. The slowdown in Google Cloud's growth, coupled with a significant increase in capex for FY25, has led to a substantial profit-taking pullback in Alphabet's shares.



The main takeaway from Alphabet's earnings report is that the slowdown in Google Cloud's growth, combined with a significant increase in capex for FY25, has led to a substantial profit-taking pullback in the company's shares. Investors should monitor the company's progress in addressing capacity constraints and the effectiveness of its AI investments to assess the long-term impact on profitability and return on investment (ROI).

As an investor, it's essential to stay informed about the latest developments in the tech sector and maintain a balanced view of the market. By acknowledging risks and uncertainties and using real-life examples and recent market events to support arguments, investors can make more informed decisions and navigate the dynamic nature of the stock market.