Alphabet Stock Drops 7% After Q4 Revenue Miss, Cloud Growth Slows

New York, NY – Alphabet Inc. shares fell sharply in after-hours trading, dropping nearly 7% after the company reported a fourth-quarter revenue miss. Investors appear to be reacting primarily to weaker-than-expected performance in the Google Cloud segment, which had previously been a key driver of growth.

“Google Cloud has been the star of the show and a consistent outperformer, gaining market share—until now,” said Gil Luria, Head of Technology Research at D.A. Davidson. “This is a significant deceleration from last quarter.”

The slowdown in cloud growth mirrors a recent trend seen at Microsoft, where Azure also reported a deceleration. Microsoft attributed the slowdown to shifts in resource allocation, with investments increasingly focused on artificial intelligence. Analysts are now waiting to see if Alphabet follows a similar narrative.

AI Investment at the Expense of Cloud?

A key question emerging from Alphabet’s earnings is whether its substantial AI investments are impacting growth in its traditional cloud business. Microsoft recently admitted that diverting resources to AI had put pressure on other segments, leading to a slowdown in non-AI cloud revenues.

“If that’s also the case for Google, it raises questions about whether these companies have overinvested in AI infrastructure,” Luria noted. “With new AI models becoming dramatically more efficient—some by as much as 97%—it’s worth reconsidering whether such aggressive cloud buildouts are still necessary.”

Alphabet has projected capital expenditures of approximately $75 billion for 2025, a significant increase from the previous year. However, analysts suggest that this figure may be the upper bound, given rapid advancements in AI technology and shifting market dynamics.

CapEx Cuts: Good or Bad for Investors?

For investors in Alphabet, Microsoft, and Amazon, a potential slowdown in capital expenditures could be a positive development.

“If these companies realize they don’t need to spend as much on data center expansion while still meeting demand, that’s good news for investors,” Luria explained. “Right now, these high CapEx levels are putting pressure on margins and cash flows. Microsoft’s cash flow declined 29% last quarter due to these investments, and if Alphabet and Amazon follow the same pattern, they may need to adopt a more disciplined approach.”

Alphabet’s Valuation Challenge

Luria currently holds a neutral rating on Alphabet, citing structural challenges in the company’s valuation.

“Alphabet has incredibly valuable assets, but as a conglomerate, it doesn’t get the appropriate valuation for businesses like YouTube, DeepMind, or its custom AI chips,” he said. “As long as these high-growth businesses remain bundled under the same umbrella as the core search business, investors will continue to assign a search-driven multiple to the entire company.”

For now, Alphabet’s stock remains under pressure as Wall Street digests the implications of its cloud slowdown and AI spending strategy. Investors will be watching closely for further guidance on how the company plans to balance growth, efficiency, and profitability in the evolving AI landscape.