Alphabet has announced a $75 billion increase in capital expenditures for 2025, marking a 42% rise aimed at accelerating its advancements in artificial intelligence (AI), despite recent market turmoil caused by the emergence of the Chinese AI firm DeepSeek.
Alphabet boosts capital expenditures by $75 billion for AI growth
During Alphabet’s earnings call, CEO Sundar Pichai praised DeepSeek’s work as “tremendous,” recognizing its impact on the industry. However, he asserted that Alphabet’s Gemini 2.0 and Flash models are among the most efficient in the market, outperforming DeepSeek’s V3 and R1 in terms of cost per query and latency.
Pichai expressed confidence that the proliferation of cheaper AI solutions will enhance demand for Alphabet’s services rather than diminishing its business model. “Part of the reason we are so excited about the AI opportunity is we know we can drive extraordinary use cases because the cost of actually using it is going to keep coming down, which will make more use cases feasible,” he stated.
Chief Financial Officer Anat Ashkenazi provided further insights into the company’s financial outlook, indicating that the capital allocation will largely focus on enhancing its technical infrastructure, including servers and data centers. Alphabet aims to meet its objectives for cloud and YouTube, achieving a combined annual revenue run rate of $110 billion, exceeding its $100 billion goal for 2024.
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Despite the anticipated challenges from fluctuating foreign exchange rates and other factors affecting first-quarter revenues, Ashkenazi indicated a robust growth trajectory for AI and cloud services. The company plans to implement efficiencies in managing expenses and infrastructure while also carefully controlling headcount growth, particularly in key investment areas like AI.
Pichai noted a significant shift in AI spending, increasingly focused on inference rather than training, which is crucial for businesses seeking a favorable return on invested capital (ROIC). He emphasized that this trend would continue to grow, aligning with Alphabet’s strategy to capitalize on this opportunity.
In the fourth quarter of 2023, Google Cloud generated $12 billion in revenue, marking a 30% year-over-year increase. Ashkenazi reported high demand for cloud capacity, indicating that the company is working diligently to bring more capacity online.
Pichai mentioned that more than 4.4 million developers are currently using Gemini models, a figure that has doubled in just six months. The operating income for Google Cloud increased to $2.1 billion year-over-year, with several substantial deals closing, including those exceeding $1 billion.
The company also highlighted the dramatic growth in its AI developer platform, Vertex AI, which experienced a fivefold increase in customers compared to the previous year, as well as exceptional adoption rates for its latest AI models such as Gemini Flash and Imagen 3.
Featured image credit: Mark Stuckey/Unsplash
