AI investment realization, Google Cloud accelerates its rapid ascent to new heights, driving innovation and growth in the digital economy.

Google’s parent company Alphabet reported strong Q4 earnings, with both cloud and search advertising accelerating growth, demonstrating that its large-scale investments in artificial intelligence are beginning to pay off.

The financial report released on Wednesday showed that Google’s search business revenue growth accelerated from 15% in Q3 to nearly 17%, while Google Cloud’s revenue growth surged by 14 percentage points to 48%. This performance alleviated previous market concerns that AI chatbots might weaken Google’s search business.

Based on Q4 revenue, Google Cloud’s annualized revenue reached $71 billion, a significant jump from less than $20 billion in 2021. More notably, while the business is experiencing rapid growth, its operating profit margin increased from 23.7% in Q3 to 30%.

Despite impressive results, Alphabet’s stock fell by one to two percentage points after hours. The company announced that capital expenditures this year will double to between $175 billion and $185 billion to build more computing capacity, a figure that already exceeds its $164.7 billion cash flow generated in 2025.

Cloud Business Achieves Scale Profitability

Google Cloud’s performance proves it has become a true business. Based on Q4 revenue, the annualized income for this segment reached $71 billion, an extraordinary achievement for a business that generated less than $20 billion in 2021. In comparison, industry leader Amazon Web Services (AWS) had an annualized revenue of $132 billion as of Q3.

While a 30% operating profit margin is still below that of larger competitors, Google Cloud has finally demonstrated that it is a sustainable business. Few tech companies succeed in both consumer and enterprise markets; Amazon is one of the few, and Google appears poised to become another.

Additionally, the growth in search revenue should help ease investor concerns from a year or two ago that AI chatbots might weaken Google’s search business. Chief Business Officer Philipp Schindler stated during the analyst call that AI is helping Google improve ad effectiveness and enabling it to serve ads on more complex search queries than before.

Google Search Revenue Growth Accelerates from 15% in Q3 to Nearly 17% in Q4, Showing AI’s Positive Impact on Core Business.

Massive Capital Expenditures Raise Cost Concerns

Alphabet announced that it will double capital expenditures this year to between $175 billion and $185 billion to build more computing capacity. This level of spending already exceeds the company’s $164.7 billion cash flow projected for 2025. The company has increased its debt and, at this rate, will have to borrow more in the future. It has also reduced share repurchase expenditures.

In addition to capital spending, Alphabet must also cover operational costs related to AI. The company separately reported that its DeepMind AI research division’s costs increased by more than double in Q4 to $5.9 billion. Alphabet stated that these costs mainly involve shared AI expenses across various business units.

As of December 31 last year, Alphabet’s total employee count reached 190,820, surpassing the peak level before the large-scale layoffs earlier in 2023.

Although Alphabet’s overall outlook appears bright, especially compared to other companies, investors are currently concerned about the costs associated with AI technology. The recent sharp sell-off in software stocks was partly driven by fears that AI might undermine existing software businesses, and worries about AI development costs continue to cast a shadow over the market.

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