The trend of Magnificent 7 companies doubling down on artificial intelligence (AI) spending in 2025 isn’t slowing down, as the most recent Alphabet (GOOGL) earnings call proves.
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On February 4, Google’s parent company reported earnings for Q4 2024, unveiling mixed results. While it beat Wall Street estimates for earnings by 2 cents per share, revenue came in slightly below expectations.
On top of that, Google reported that year-over-year (YOY) growth is declining for its YouTube advertising business, as well as for its search and services segments. This is likely why GOOGL stock is falling today, as online searches are still a primary revenue driver for the company.
However, some experts seem even more concerned about something else that might threaten Google’s progress in the coming year. The company may be on the verge of being left out of the next high-growth phase of the AI market.
Google CEO Sundar Pichai recently revealed that the company plans to significantly increase AI spending in 2025 (Photo By Lea Suzuki/The San Francisco Chronicle via Getty Images)
San Francisco Chronicle/Hearst Newspapers via Getty Images/Getty Images
Google is facing an uncertain future as AI continues to shift
With growth declining across several key areas for Google, it makes sense that analysts would be raising concerns about its future. TheStreet’s Martin Baccardax reports that some have overhauled their GOOGL stock price targets, highlighting concerns about the company’s AI spending.
Last year, Google spent roughly $52 billion on AI investments, such as building out data centers and powerful AI servers and purchasing 169,000 highly-priced Hopper chips from Nvidia (NVDA) . Now, it plans to spend up to $75 billion in 2025, more than $15 billion higher than Wall Street estimates and more than 50% higher than it spent a year ago.
Related: Analysts rework Google parent stock price targets after earnings shock
“We are pushing the next frontiers from AI agents, reasoning, and deep research to state-of-the-art video, quantum computing, and more,” stated CEO Sundar Pichai on the Q4 earnings call.
That highlights an important aspect of Google’s AI strategy, one that may pose complications. While agentic AI is hailed as one of the tech sector’s next major growth phases, Google may be falling behind several key competitors in the race to develop an AI agent capable of completing tasks and making decisions.
A report from Financial Review describes Google as “playing catch-up on the hottest consumer trend of the year,” as its users won’t be able to try out its full AI agent until late 2025, and no specific date has been given.
On the Q4 earnings call, Pichai highlighted the company’s agentic AI progress, but his context remained vague and did not include any key dates for when users can expect key updates.
Meanwhile, other companies are making progress in releasing AI agents of their own.
The report highlights OpenAI as an example, noting, “In the US, ChatGPT Pro subscribers, who pay $US200 ($320) a month for access to the chatbot’s top-tier service, have begun experimenting with OpenAI’s Operator after it was launched late last month.”
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It also adds that fellow AI startup Anthropic is taking steps toward developing its own effective AI agents. In October 2024, the company announced the release of Claude 3.5 Sonnet, a new feature of its large language model (LLM), Claude, which enables users to direct it to operate a computer as they would.
Can Google justify its high AI spending in 2025?
Despite this rising competition from key AI players, Pichai doesn’t seem worried about Google falling behind in the agentic AI race. He touted the company’s progress in developing its AI suite and highlighted the potential he sees, stating:
“Gemini 2.0’s advances in multimodality and native tool use enable us to build new agents that bring us closer to our vision of a universal assistant.”
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Google’s handling of its agentic AI rollout—choosing to move slowly and only release details in a fairly vague way—clearly shows that the company is more concerned with producing robust technology than with beating its rivals to market.
This indicates that Google is confident it can produce a superior product, even as other companies continue to pull ahead in the race. However, the fact that it is increasing AI spending so much seems to be raising red flags for some experts.
As Financial Review also notes, “Concerns over Alphabet’s ability to capitalize on its enormous investment in AI weighed on its share price.”
Wall Street veteran Chris Versace speculates that Google is likely capacity-constrained. In his view, this puts it in the same category as Microsoft (MSFT) , another tech sector leader that also indicated plans to increase its AI spending in 2025 significantly.
Companies seemingly plan to spend more than Wall Street expected in 2025 to increase production capacity. To justify these high capital expenditures, Google will likely need to catch up to its rivals by releasing its answer to the OpenAI Operator.
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