People attended the Made by Google event in Mountain View, California, on August 13, 2024, where Google unveiled its latest products. (AP Photo/Juliana Yamada, File) · ASSOCIATED PRESS
Google’s parent company, Alphabet (GOOG, GOOGL), faced a sharp decline in its stock price after revealing its fourth-quarter earnings. While the company exceeded expectations on earnings per share (EPS) and matched revenue estimates, its cloud business performance fell short.
The Google Cloud segment, a crucial area of growth, reported $11.9 billion in revenue—$200 million less than Wall Street’s $12.1 billion forecast. Meanwhile, Alphabet’s capital expenditures soared from $57.9 billion in the previous year to a projected $75 billion for the upcoming year.
Following the earnings announcement, Alphabet’s stock plunged 7% in early Wednesday trading. Shares closed at $193.30, marking a 6.94% loss, and remained relatively flat in after-hours trading.
Regulatory Hurdles and Market Pressures
Adding to its challenges, China launched an antitrust probe into Google, widely seen as retaliation against former U.S. President Trump’s 10% tariff on Chinese goods. Alphabet is also facing increased competition from China-based DeepSeek, whose AI models have proven to be more cost-effective yet just as powerful as Silicon Valley’s leading AI systems.
Meta’s Strong Earnings and AI Investments
Meanwhile, Meta (META), Alphabet’s chief competitor in the advertising space, recently posted better-than-expected earnings. However, Meta did not issue a full-year forecast. Like Alphabet, Meta is also heavily investing in AI, hoping to boost advertising revenue and user engagement.
How Alphabet Stacks Up Against Competitors
Alphabet’s advertising business remains strong, generating $72.4 billion, exceeding expectations of $71.7 billion. However, Google Cloud’s slower growth puts it at a disadvantage against competitors like Microsoft (MSFT) and Amazon (AMZN).
Microsoft’s cloud revenue surged 21% year-over-year, reaching $40 billion last quarter. However, it still fell short of Wall Street’s $41.1 billion target, leading to a drop in Microsoft’s stock price.
Regulatory Risks Loom Over Google
Beyond financial performance, Alphabet is battling legal challenges. Late last year, Google appealed a court ruling that found it abused its monopoly power in the search business. Some government lawyers have suggested a breakup of the company, though the market seems unconcerned for now.
Alphabet’s Stock Performance
Despite recent turbulence, Alphabet’s shares have climbed 41% over the past year, outpacing Amazon’s 39% gain and significantly outperforming Microsoft’s 2% increase. However, with rising competition, regulatory pressure, and increased spending, investors remain cautious about the tech giant’s next moves.
