Alphabet Stock Slides as Company Misses Q4 Revenues and Announces Big Capex

Alphabet (NYSE: GOOG) stock is trading sharply lower in US premarkets today as investors gave a thumbs down to its Q4 earnings. The company’s revenues in the final quarter of 2024 fell short of analysts’ estimates while it forecast a big jump in its capex for this year.

Alphabet reported revenues of $96.47 billion in the quarter. While Google-parent’s sales rose 12% YoY in Q4, in part due to higher ad spending during the US elections, the metric fell short of the $96.56 billion that analysts were expecting.

Alphabet Misses Q4 Revenue Estimates

Looking at the different business segments, Google Search revenues rose 12.5% YoY to $54 billion while YouTube revenues were up 13.8% to $10.47 billion. The company’s cloud revenues rose 30% to $11.96 billion which was short of the $12.19 billion that analysts were expecting. The company’s Other Bets segment posted revenues of $400 million which was well short of the $616 million that analysts were expecting. The segment, which among others houses the Waymo self-driving unit, posted an operating loss of $1.17 billion as compared to $863 million in the corresponding quarter last year.

The Other Bets segment has been a point of contention with some investor groups who have called upon Alphabet to cut losses in that segment. Meanwhile, while Alphabet missed topline estimates, the company’s EPS of $2.15 was slightly ahead of the $2.13 that analysts were expecting.

In his prepared remarks, Alphabet CEO Sundar Pichai said, Q4 was a strong quarter driven by our leadership in AI and momentum across the business. We are building, testing, and launching products and models faster than ever, and making significant progress in compute and driving efficiencies.”

Waymo Is Making 150,000 Trips a Week

During the earnings call, Alphabet said that Waymo was now doing 150,000 rises every week and the company plans to enter new markets like Austin and Atlanta later this year. Notably, in December, Waymo partnered with Japan’s largest taxi operator, Nihon Kotsu, and taxi app GO to test its vehicles in Tokyo.

To begin with, drivers will operate Waymo vehicles manually to map key streets in Tokyo and the data will be subsequently used to train Waymo’s AI systems. The company would use the driving conditions in Japan to test its robotaxis in the US.

While Alphabet-backed Waymo is expanding its robotaxi operations, General Motors has exited the business even as it is working on developing autonomous driving.

Tesla also launched its robotaxi which it has dubbed Cybercab in October and expects to start its robotaxi operations this year. At the “We, Robot” event in October, Tesla unveiled its robotaxi or the Cybercab which is a low two-seater and has no steering wheels or pedals. Tesla CEO Elon Musk is optimistic that the company can sell Cybercab for less than $30,000 even as many analysts doubt that the company can make profits selling the car in that price range.

Meanwhile, many analysts expect easier self-driving regulations under Donald Trump’s presidency which would benefit Tesla. The billionaire was among the key backers of Trump and now heads the Department of Government Efficiency (DOGE) which is tasked with advising the president on cutting excess government spending.

Alphabet Is Bullish on Its AI Business

Meanwhile, the question about DeepSeek which has built a low-cost AI model expectedly popped up during Alphabet’s earnings call. While Pichai was praise for the company and called it a “tremendous team” that has done “very, very good work,” he said, “There’s frontier model development, but you can drive a lot of efficiency to serve these models really, really well.”

The Alphabet CEO added, “And if you look at one of the areas in which the Gemini model shines is the Pareto frontier of cost performance in latency. And if you look at all three attributes, I think we are — we lead this period of frontier.”

Meanwhile, Alphabet is doubling down on its capex as it builds AI infrastructure. The company expects its capex to be around $75 billion this year as it joins fellow US Big Tech peers to increase its AI investments. Notably, last year Pichai said that the bigger risk was not overinvesting in AI but actually underinvesting. However, of late investors have been growing wary of tech companies’ growing capex towards AI as some of them haven’t been able to show commensurate returns on investment.

How Analysts Reacted to GOOG’s Q4 Earnings

In his note, Goldman Sachs analyst Eric Sheridan said, “We continue to advocate that the combination of AI distribution at scale (collection 1b+ user applications) and scale of compute to both invest and drive efficiencies remain as a dual under-appreciated narrative in terms of AI over the long-term, particularly as we move from the ‘infrastructure’ to ‘platform’ and ‘application’ layers of AI monetization.”

However, several analysts trimmed their target price for Alphabet. Among them was Bernstein whose analyst Mark Shmulik lowered GOOG’s target price from $210 to $200 while maintaining his market perform rating.

“Google stock moves now seem a lot more tied to Google Cloud’s fortunes — this is the 3rd quarter where the stock reaction tightly correlates to Cloud’s performance vs. expectations. The theory goes something like this: If Google wants to be viewed and treated like an AI winner, we need some quantified [key performance indicators],” said Shmulik in his note.

He added, “Cloud growth is such a KPI, and while 30% Y/Y growth is nothing to sneeze at, it’s a steeper deceleration Q/Q than investors were expecting and slows the share capture story against the Big 2 of AWS and Azure.”

UBS also maintained its neutral rating on Alphabet citing lack of clarity over the company’s ability to monetize AI. “For the time being we alongside investors will need to wait for sharper product development/release signals to materialize, said UBS in its note.

Meanwhile, GOOG stock is trading almost 7% lower in US premarkets price action after a disappointing quarterly performance.