A slowdown in cloud computing sales inhibited Google’s revenue growth in the latest quarter, causing its shares to fall sharply after the stock market closed.
Parent company Alphabet reported revenue of $96.5 billion (€92.8 billion) for the three months through December. This is up 12 percent from the same period a year earlier. Alphabet has not reported such a low growth rate since 2023. This reports The Wall Street Journal
Alphabet shares fell about 7 percent in after-hours trading, eroding much of the roughly 8 percent gain the stock realized this year. Microsoft shares also fell last week after investors were disappointed with growth figures from its cloud division.
Lower growth in cloud computing
Google’s cloud computing division reported revenue of $12 billion in the fourth quarter, up 30.1 percent from a year earlier. In the third quarter, cloud revenue still grew 35 percent.
Google CEO Sundar Pichai said the company is accelerating its investments in the data centers that power AI, both for Google itself and its cloud computing division customers. Pichai indicated that Google will make about $75 billion in capital spending this year, compared with $52.5 billion in 2024.
Competition from DeepSeek
Big tech companies are increasingly criticized for their massive spending on artificial intelligence, especially after the rise of Chinese startup DeepSeek. Last month, this company stunned Silicon Valley with powerful AI models developed more cheaply than their American counterparts. DeepSeek’s chatbot app quickly rose to the top of app store rankings, ahead of ChatGPT and Google’s Gemini.
Responding to a question about Chinese AI during a call with analysts, Pichai emphasized that Google’s Gemini AI is the market leader and has achieved significant cost savings.
Google reported that the number of developers using Gemini models has doubled to more than 4.4 million in six months. Access to Gemini is offered through Google’s cloud division.
Smaller market share of Google Search
Company executives hoped the strong performance of the cloud division would offset declining growth in Google’s core business, such as ad revenue. Competitors like Amazon and TikTok are increasingly taking over market share in the search ad market.
Alphabet’s Chief Financial Officer Anat Ashkenazi said the cloud division ended the year with more customer demand than available capacity and that the company is working on expansions. Microsoft also indicated in its recent quarterly results that supply constraints prevented faster cloud business growth.
Pichai has set a goal of reaching 500 million users for the Gemini chatbot by the end of the year. Since OpenAI launched ChatGPT in late 2022, Google has been trying to catch up.
Pichai said Google is considering ads within Gemini but is currently focused on increasing subscription revenue from the chatbot. Google’s ad revenue rose 10.6 percent to $72.5 billion in the latest quarter, slightly higher than the 10.4 percent growth in the previous quarter.
Last month, Google offered voluntary severance packages to employees working on Pixel devices and Android software, following the merger of these teams under one executive. Alphabet reported a net profit of $26.6 billion in the quarter, up 28.3 percent from a year earlier.
Antitrust investigation in China
Google faced an antitrust investigation in China this week, presumably in retaliation for new U.S. tariffs on Chinese goods. The Chinese competition authority gave no details about the investigation, and Google declined to comment.
In the U.S., Google is preparing for a legal battle against the U.S. government, which wants to force a split of the company following a court ruling that Google has a monopoly on online search. A ruling is also expected soon in another antitrust case over Google’s role in the online advertising market.
Google announced on Tuesday that it would review its principles for developing and implementing AI in areas such as national security. The company recently removed text from its website pledging not to develop AI for weapons or build technologies primarily designed to harm humans. According to screenshots seen by The Wall Street Journal, this commitment was previously explicit.
As recently as 2018, Google declared it would not develop AI for military weapons after employees successfully pressured it not to renew a cloud computing contract with the Pentagon.