Google's AI Gamble: Shares Slip

Google's parent company, Alphabet, recently experienced a significant drop in its shares due to several factors related to its performance and strategic decisions regarding artificial intelligence (AI). Here are the key reasons and concerns:

Reasons for the Drop in Google Shares

1. Revenue Miss: Alphabet missed Wall Street's revenue expectations for the fourth quarter of 2024. The company reported $96.47 billion in revenue, falling short of the anticipated $96.56 billion
2. Slowed Cloud Growth: Google Cloud's growth was slower than expected, with a year-over-year increase of 30% compared to analysts' projections of around 35% growth rate seen previously. This slowdown is concerning as cloud services are a critical area for tech giants.
3. High Capital Expenditures: Alphabet announced plans to spend approximately $75 billion on capital expenditures in 2025, significantly exceeding analysts' estimates. This substantial investment is primarily aimed at enhancing AI capabilities and building data centres.

Concerns About AI

1. Ethical Considerations: Alphabet has revised its AI principles, removing assurances against using AI for weapon development or surveillance tools. This change raises ethical concerns about how AI might be used in harmful ways.
2. Competition and Cost Efficiency: The emergence of cheaper alternatives like DeepSeek's AI models has raised questions about whether American tech giants like Google are spending efficiently on their own AI developments.
3. Investment Payoff Uncertainty: Analysts have expressed uncertainty over whether such high investments will yield sufficient returns or enhance competitiveness effectively.
4. Potential Risks of Advanced AI: There are broader societal risks associated with advanced AI development, including job losses, bias issues, privacy violations, and potential misuse by malicious actors.

In summary, while Google continues to invest heavily in AI infrastructure with optimism about future opportunities, investors remain cautious due to both financial performance concerns and ethical considerations surrounding the technology itself.

Overall, Alphabet's plan to grow its cloud infrastructure is bold and shows that it believes there will be a need for sophisticated computing power in the future due to new technologies like large language models (LLMs). However, if it wants to keep investors' trust in the face of growing competition in this quickly changing market, it will need to successfully manage these obstacles.