Good morning. Alphabet Inc., the parent of Google, is placing AI at the heart of its infrastructure to enhance products such as cloud services and search. Meanwhile, CFO Anat Ashkenazi is also betting on the technology to boost efficiency within the company.
As Alphabet expands its AI efforts, the company expects to increase investments in capital expenditure (capex) for technical infrastructure, primarily for servers, followed by data centers and networking, Ashkenazi said during the Q4 earnings call just after the bell on Tuesday.
“We expect to invest approximately $75 billion in capex in 2025, approximately $16 to $18 billion of that in the first quarter,” she said. That’s above the approximately $58 billion in capex for the year that analysts had been expecting. Alphabet also expects some headcount growth this year in "key investment areas such as AI and cloud," Ashkenazi said.
Revenue for the quarter ending Dec. 31 was $96.5 billion, up 12% year over year, slightly missing analysts' expectations of $96.6 billion. Net income for the quarter was $26.5 billion, a 28% increase from the year prior, which beat estimates. Alphabet shares fell about 8% in extended trading on Tuesday.
“Total revenues came in a bit light and the Street will worry that this along with massive capex is a bad combo,” Dan Ives, managing director at Wedbush Securities, told me Tuesday evening. “We disagree as this is an AI Arms Race and Alphabet is making the right moves at the right time. While this quarter was not a home run, we believe the stock down this much is an overreaction and we would be buyers.”
For Google Cloud, which offers AI products and services, revenue increased 30% year over year to $11.96 billion. However, analysts were expecting an increase of 32.3% to $12.16 billion, according to data compiled by LSEG. The growth rate in the previous quarter was 35%. The slowdown was partially due to a shortage of supply as Google doesn’t have enough capacity in its data centers to meet all the demand, Ashkenazi said on the call. In Q4, “Google Search & other” business accounted for 56% of the company’s $96.5 billion in revenue.
‘Not a one-quarter type of effort’
Ashkenazi began her tenure as CFO on July 31, joining the tech giant from an impressive career as finance chief at drugmaker Eli Lilly. On her debut earnings call in Q3 last October, she stated she intended to pursue efficiency. Ashkenazi noted the “good work” that her predecessor Ruth Porat, CEO Sundar Pichai, and the team did to “re-engineer the cost base.” She added: “But I think any organization can always push a little further and I’ll be looking at additional opportunities.”
On Tuesday’s Q4 earnings call, Ashkenazi mentioned optimizing the company's real estate footprint and also simplifying the organization by bringing some of the AI research teams together, for example. She also emphasized the company's strategy of using its own AI tools to run the business, whether it's “writing code with AI or even running some of our key processes using AI tools.”
Ashkenazi also commented that the push for efficiency “is not a one-quarter type of effort.”
“It's going to continue throughout the year, and we're going to continue to focus on that so that we can support the growth in other areas,” she said.
Sheryl Estrada
sheryl.estrada@fortune.com
The following sections of CFO Daily were curated by Greg McKenna.
