Alphabet reported a strong fourth-quarter performance on Wednesday, beating Wall Street expectations on both revenue and profit, while warning of a sharp acceleration in artificial intelligence spending next year. Despite the upbeat numbers, the stock fell as much as 3% in extended trading as investors weighed the scale of upcoming capital expenditures.
The parent company of Google posted earnings per share of $2.82, ahead of analyst estimates of $2.63, according to LSEG. Revenue came in at $113.83 billion, exceeding expectations of $111.43 billion.
Net income rose nearly 30% year over year to $34.46 billion, while total revenue increased about 18% from the same period last year.
AI Investment to Surge in 2026
Alphabet said it expects capital expenditures in 2026 to range between $175 billion and $185 billion, more than double its projected spending for 2025 at the top end of the forecast. The company had previously signaled a “significant increase” in AI-related investments.
Finance chief Anat Ashkenazi told analysts the bulk of the spending will go toward expanding AI compute capacity for Google DeepMind, meeting rising cloud customer demand, and supporting strategic investments across the company’s portfolio. Additional capital will be used to enhance user experiences and improve advertiser returns across Google’s services, she added.
Advertising and YouTube Miss Mixed Expectations
Advertising revenue totaled $82.28 billion for the quarter, marking a 13.5% year-over-year increase. However, YouTube ad revenue came in at $11.38 billion, falling short of StreetAccount expectations of $11.84 billion, despite growing nearly 9% from a year earlier.
Ashkenazi attributed the softer ad performance to tough comparisons following elevated political advertising spend during the U.S. elections in the fourth quarter of 2024.
Traffic acquisition costs rose to $16.59 billion, slightly above analyst expectations of $16.20 billion.
Cloud Growth Accelerates on AI Demand
Google Cloud delivered one of the quarter’s standout performances, generating $17.66 billion in revenue, well ahead of expectations of $16.18 billion. Revenue surged nearly 48% year over year, driven by strong demand for AI infrastructure and services.
The unit’s backlog jumped 55% sequentially and more than doubled from a year earlier, reaching $240 billion by the end of the quarter—underscoring sustained enterprise demand for cloud and AI workloads.
Gemini User Base Expands Rapidly
Alphabet CEO Sundar Pichai said the company’s Gemini AI app now has more than 750 million monthly active users, up from 650 million in the prior quarter.
“As we scale, we are getting dramatically more efficient,” Pichai told analysts, noting that Alphabet reduced Gemini’s serving unit costs by 78% over 2025 through model optimizations and improved infrastructure utilization.
Other Bets Deepen Losses
Alphabet’s “Other Bets” segment—which includes life sciences arm Verily and self-driving unit Waymo—reported quarterly revenue of $370 million, down 7.5% from a year earlier. Segment losses widened sharply to $3.61 billion, up more than 200% year over year.
Waymo recorded a $2.1 billion stock-based compensation charge during the quarter following a new funding round valuing the autonomous vehicle business at $16 billion. The majority of the charge was reflected in research and development expenses.
Waymo ended 2025 having completed 15 million paid trips across five major U.S. markets, including Austin, Atlanta, Los Angeles, Phoenix, and the San Francisco Bay Area. The company expanded operations to Miami in January.
