Alphabet stock falls as company raises 2026 capex during earnings call

Alphabet shares dropped sharply during the company's earnings call on Thursday after executives announced a significant increase in capital expenditures for 2026, signaling that the tech giant plans to ramp up spending on artificial intelligence infrastructure. The stock decline came even as Alphabet reported a quadrupling of annual profit to $112 billion, driven by strong growth in its AI investments.

The earnings report showed that Alphabet's cloud business posted better-than-expected revenue, helping to offset a slight miss in search advertising revenue. The cloud segment has become a key driver of growth, with Google justifying its massive AI spending by pointing to the booming demand for cloud services that incorporate AI capabilities.

Investors reacted negatively to the news that capital expenditures for 2026 would be higher than previously anticipated, raising concerns about near-term profitability. The stock selloff during the analyst call underscored the market's sensitivity to spending levels, even as Alphabet's overall financial performance remains robust.

Alphabet's profit surge to $112 billion represents a fourfold increase, largely fueled by its aggressive push into artificial intelligence. The company has been investing heavily in AI research and infrastructure, including data centers and specialized chips, to compete with rivals like Microsoft and Amazon.

The earnings report comes amid a broader test of the AI trade, as investors weigh the long-term potential of AI against the upfront costs. Alphabet's results provide a mixed picture: while the cloud business is thriving, search revenue growth has slowed slightly, suggesting that the company's core advertising business faces headwinds.

Looking ahead, Alphabet's increased capex for 2026 indicates that the company remains committed to its AI strategy, betting that these investments will pay off as enterprises increasingly adopt AI-powered cloud services. However, the immediate market reaction suggests that investors will be watching closely for signs of a return on that spending.