Alphabet stock (NASDAQ: GOOGL) plunged over 7% in the pre-market trading on Thursday, despite beating revenue and profit estimates for the fourth quarter.
The sharp sell-off came despite some impressive milestones like cloud and search firing and annual sales topping 400 billion dollars for the first time.
The investor caution began once executives unveiled a jaw‑dropping plan to spend up to $185 billion on capital investment in 2026, largely to fuel its artificial‑intelligence ambitions.
In simple terms, investors loved the quarter but balked at the bill.
An earnings beat does not guarantee a rising share price when a company simultaneously tells the market it will spend far more cash next year than anyone expected.
Alphabet stock: Why investors turned cautious
The flashpoint was one line in Alphabet’s outlook.
The company told investors it expects 2026 capital spending to land between $175 billion and $185 billion, more than double the roughly $91 billion it spent in 2025 and far above the $115–$120 billion analysts expected.
CEO Sundar Pichai framed the move as necessary to “meet customer demand and capitalize on the growing opportunities we have ahead of us.”
He added that the bulk of the budget will go into AI infrastructure, including servers, data centres, and networking to power its Gemini models, Google DeepMind, and surging cloud workloads.
CFO Anat Ashkenazi said about 60% of today’s capex already goes to servers and 40% to data centres and networking, and that 2026 spending will lean even more heavily into AI compute for DeepMind and Google Cloud.
But for equity holders, that scale is “stunning,” in the words of several analysts, because it implies a much deeper investment cycle, and potentially a trough in free cash flow.
Meta, only a week earlier, shocked investors with plans to lift its own AI capex to as much as 135 billion dollars this year; Alphabet has now moved the goalposts again.
Strong numbers but mixed signal
The irony is that the quarter itself was strong. Alphabet reported fourth‑quarter revenue of $113.83 billion, up 18% year‑on‑year and ahead of roughly $111 billion expected by analysts.
Adjusted earnings per share came in at $2.82, versus forecasts around $2.64–$2.65.
Google Cloud revenue jumped to about $17.66–17.7 billion, almost 48% higher than a year earlier and comfortably above the $16.2 billion Wall Street had modeled.
YouTube advertising, at $11.38 billion in the quarter, also grew from $10.47 billion a year earlier, though some analysts noted it landed a touch below the most bullish expectations.
Overall, Google Services revenu, largely search and ads, rose 14% to about $95.9 billion.
By the basic scoreboard, Alphabet delivered: it beat on the top line, beat on earnings, and showed its cloud franchise is gaining ground on Amazon and Microsoft.
Thursday’s decline in Alphabet stock came as the share price had run up roughly 80% in the six months heading into earnings as investors embraced Alphabet as a core AI winner.
When expectations are that high, any sign of lower near‑term cash generation can trigger a rethink.
As one Bernstein analyst put it in a note, this AI cycle is “as much about racing to the bottom [on free cash flow] as it is about expanding the total addressable market,” and Alphabet just signaled it intends to race hard.
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