Alphabet shares traded sharply lower as of premarket hours, with GOOG down more than 5% to around $316 after closing Wednesday at $333.34. The decline followed a quarterly earnings beat that failed to reassure investors focused on future spending risks. Why did the stock fall when the numbers beat expectations? Markets focused less on results and more on what comes next.
Alphabet reported fourth-quarter revenue of $113.83 billion, surpassing the $111.43 billion consensus estimate. Earnings per share climbed to $2.82 from $2.15 a year earlier, also beating forecasts.
Despite these results, premarket selling accelerated as investors digested the company’s forward guidance.
AI Spending Takes Center Stage
Alphabet disclosed plans to lift capital expenditures in 2026 to between $175 billion and $185 billion. The midpoint of that range far exceeded Wall Street expectations near $119.5 billion. The company spent about $91 billion in 2025, meaning the new forecast implies a dramatic increase in spending within one year.
Management linked most of the planned outlay to AI computing infrastructure. The investment will support Google DeepMind, data centers, and advanced AI model development. However, the scale of the spending raised questions around near-term margins. Investors responded by cutting exposure to software stocks amid broader concerns that AI tools may erode traditional software revenue models.
Cloud Strength Meets Profitability Concerns
Google Cloud delivered one of the strongest performances in the quarter. Revenue reached $17.66 billion, far above the $16.18 billion estimate. The unit recorded 48% year-over-year growth, driven by enterprise demand for AI services and Gemini-related workloads.
Still, analysts highlighted rising costs tied to infrastructure and research. Barclays noted that spending on Cloud, DeepMind, and Waymo weighed on overall profitability. While analysts acknowledged strong adoption metrics, they also flagged sustained pressure on margins into 2026 as spending ramps up.
Advertising and Services Remain Stable
Google Services, which includes Search and YouTube advertising, generated $95.9 billion in revenue. That figure exceeded forecasts and marked a 14% increase from the prior year. YouTube advertising came in slightly below expectations at $11.38 billion, yet Search revenue benefited from AI-driven engagement.
CEO Sundar Pichai pointed to AI integration across Search as a contributor to monetization. Even so, the slower growth pace in advertising compared with Cloud reinforced investor focus on cost-heavy growth areas.
Market Reaction Reflects Broader Tech Fears
Alphabet shares had gained more than 20% since the prior earnings cycle, outperforming several peers in the so-called Magnificent Seven. In contrast, Microsoft shares have dropped sharply over the same period. The latest pullback suggests investors now reassess risk across large-cap tech.
Deutsche Bank described Alphabet’s spending plan as stunning, noting uncertainty around returns in a shifting tech landscape. With AI investment accelerating across Big Tech, markets continue to question how quickly revenue growth can justify the capital required.
Alphabet’s earnings confirmed operational strength. However, the stock’s premarket decline showed that investors remain focused on cost discipline and return visibility. As AI spending expands, markets appear set to scrutinize execution just as closely as growth.