Instant Reaction: Alphabet Slides After Cloud Sales Fall Short
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Bloomberg Audio Studios. Podcasts. Radio. News. Fourth quarter earnings per share coming in above estimates at $2.15. Estimates were for $2.13. Revenue coming in just shy of estimates, but ever so slightly. We can go ahead and say that meets estimates at $96.47 billion. Estimates were for $96.7.

billion dollars google ad revenue the one that everybody is watching came in above estimates at 72.46 billion estimates were for 71.73 billion and then of course the cloud revenue so important that was a slight miss at 11.96 billion estimates were for 12.19 billion dollars yeah the company also talking about capital expenditures in 2025 they say they expect to invest about 75 billion dollars

Fourth quarter revenue, XTAC, traffic and acquisition costs, $81.62 billion. That's a little light, folks, $82.82 billion. And that is what maybe is why the stock is down about 5%, 5.5% here in the aftermarket. Keep in mind that cloud search, so important. They are facing intensifying competition. Alphabet also saying AI-powered Google Cloud portfolio has stronger demand.

Again, one of the two key points from earnings so far, fourth quarter Google Cloud revenue. Again, as Tim mentioned earlier, so important. This is something that has been really helping the company outperform. That is a miss. $11.96 billion fourth quarter Google Cloud revenue. The estimate on the street was $12.19 billion. And again, as I mentioned, fourth quarter revenue, XTAC, $81.62 billion. And that too is a little light, Tim, $82.62.

82.82 billion. That plays to the search business. Those are the two important businesses for Alphabet down now about 6% here in the aftermarket. Looking for commentary from Sundar Pichai, the CEO of the company. He says that quarter four was a strong quarter driven by our leadership in AI and momentum across the business. He says we are building, testing, and launching products and models faster than ever in making significant progress in compute and driving efficiencies.

He goes on to talk about advances like AI overviews and circle to search are increasing user engagement. He says that AI powered Google Cloud portfolio is seeing stronger customer demand and YouTube continues to be the leader in streaming watch time and podcasts. All right. So interesting. And again, we've got this stock down almost 7% here in the aftermarket. So some disappointment potentially about kind of those misses. You are seeing, as I mentioned, 2025 CapEx, about $75 billion in

This is maybe a big reason why you're seeing some of the selling here in the aftermarket. The estimate on the street in terms of CapEx for this year, 2025, was $57.9 billion. Again, Alphabet coming out and saying it sees 2025 CapEx.

much higher than that, $75 billion. So a big spend there on AI, one would assume, and other aspects. But really, AI and that build-out seems to continue among these big tech companies. We're seeing shares move lower, shares tumbling more than 7% after that fourth quarter revenue misses estimates. But I got to tell you, Carol,

That fourth quarter outlook or that fourth quarter revenue, excluding traffic acquisition costs, only slightly shy of estimates, $81.62 billion. So just a little over a billion dollars shy. Estimates were for $82.82 billion. Yeah, I think some of it has to do that. Those are two of their biggest businesses, right, and have provided momentum for the

company and help them to beat analysts estimates last time around that they reported results. So to see that maybe some disappointment that they came in a little light on both cloud and on their search business, and then to see also that capex spend, you know, that there might be some concern. So again, watching shares of Alphabet, which are up about 9% here in 2025, but now in the aftermarket, we're seeing pressure and the stock continuing to be down

about 6.7%. Running around in a big way is our own Mandeep Singh. He follows Alphabet for us. Mandeep, initial thoughts? It looks like some disappointment on two of their biggest businesses. We're also looking at CapEx that seems to be coming in much higher than what the street was expecting. Stock right now is down about almost 7%. Yeah, I mean, look, they did set up a high bar for the cloud segment. So the fact that

We saw a miss there and the other big miss seems to be around the YouTube subscription line even though it's lumped into that other segment, but even though they beat on YouTube ads the subscription line seems to have decelerated but overall I mean look the search was very resilient you can see that number was strong which is why when you look at the overall operating income, I mean it was in line so

Given how much weight we put on the cloud and the YouTube segments, the fact that those two disappointed is why you're seeing that knee jerk reaction. Cloud, YouTube. What about CapEx? The estimate was for $58 billion, roughly. Alphabet comes out in this press release and says, seeing CapEx this year, about $75 billion. Is the company being punished for that?

I don't think so, because we know Meta just raised their CapEx guide by 50% for 2025. So to me, this number is in line with what Meta is doing. In fact, a lot of people expected that Google will raise. And so I would be surprised if the stock is down because they raised the CapEx guide. Is this...

I know you don't give price targets, but seeing a close to 7% decline, 6.5% right now, given that the company barely missed on fourth quarter revenue,

It seems like a big reaction for not that big of a mess. Look, the way to look at Alphabet right now is everyone feels the YouTube and the cloud businesses are the growth drivers. So they are $100 billion run rate, almost one third of the overall revenue. But that's supposed to be the 25 to 30% grower.

The search business is supposed to decelerate just because they have more competition and look, I think search is a much higher revenue base. So in this case, the fact that search continues to be resilient and the growth businesses are decelerating, that is why you're seeing this sort of reaction.

Overall, I would say, you know, in the case of a company like Alphabet, everything is so interconnected. Like they have six apps with over 2 billion monthly active users. Now, YouTube is one of those, but then they also have Maps and, you know, the course search business. And that's where...

It's powered by a common digital ads platform, so it's not worthwhile to look at individual businesses and judge them on their performance in a quarter. Overall, business continues to go very robustly, and you can have a quarter where cloud has a slight miss and YouTube

has a slight miss. But I think overall, when you look at Alphabet's growth, that's still very strong. Mandeep, what do you want to know about that cloud miss? Again, slight miss, and it could be just an off quarter. It happens to companies. But does it say something about the AI spend in terms of companies? Look, they are raising their capex. We know they will be spending $75 billion. How does that translate into cloud growth?

That's the number one question, because if it's decelerating and they're increasing their capex, that's not a good sign. But my feeling is, you know, this is more about compute capacity being available to be deployed to the customers.

everyone was compute constrained. We know that in 2024. So is this CapEx really to alleviate that compute constraints? My guess is yes. Well, you know, it's so interesting that you say that. I was having a conversation with people about kind of power and nuclear and so on and so forth and the demand by AI and, you know, how we've seen from so many of these tech companies that

The power isn't necessarily there to power everything that needs to be done in terms of the AI world and all the computing. So does that continue to be a drag on some of these numbers? And so we have to kind of brush all these results with that? Well, the one other factor with Alphabet specifically is everyone... Or the build isn't there.

Everyone expects Alphabet to be more kind of compute efficient because they have their own TPUs, like equivalent of NVIDIA GPUs. So the fact that they're raising their CapEx despite having their own chips is also somewhat of a negative sign, although I won't put too much into it. I'd wait for the call for them to explain why they're raising their CapEx by 50%. But

But essentially, the logic here is they should be able to give out more of their NVIDIA GPUs for external consumption and use their TPUs for their own consumption, whereas everyone else has to use NVIDIA GPUs for their own apps. Right. And then for Microsoft, the remainder goes out for customers.

By that logic, Google's cloud growth accelerating made a ton of sense. The fact that this quarter did turn out to be that way, it kind of puts that into the question, why did the cloud growth decelerate or disappoint? We should point out, too, that shares of Alphabet still down about 6.6% in the aftermarket. Kind of our red headline is saying Alphabet shares are tumbling after fourth quarter revenue misses estimate. But we're talking with our Mandeep Singh for kind of more clarity in terms of what the quarter looked like.

Hey, I just want to get Mandeep's thoughts on Snap because the shares of Snap are surging in the after hours up about 14% as we speak. The company sees first quarter adjusted EBITDA from $40 to $75 million. Estimate was for $79.9 million. Perhaps the reason it's higher is because fourth quarter revenue came in at $1.56 billion, beating estimates ever so slightly. And then first quarter revenue

coming in, sees first quarter revenue rather, from at 1.33 billion to 1.36 billion. The estimate was for 1.33 billion. This is a company where I feel like every quarter the stock moves double digits one way or another after earnings. What are your immediate thoughts?

I mean, look, when you look at Alphabet, they are adding, you know, almost four or five billion dollars in ad revenue, search ad revenue every quarter. You look at Snap, it's a one point five billion dollar quarter. And so when you compare it that way, the absolute numbers, I mean, their growth is nothing to talk about. Yes, the bar was really low and they beat the consensus numbers.

But in terms of the actual ad dollars, this just shows that Alphabet, when you compare, you know, Search and YouTube, they are still getting a lot of the incremental ad dollars. How do you compare Google Cloud versus, we're going to hear from Amazon, obviously, and then we've heard from Microsoft. So, you know, put that against them and what we're hearing from Alphabet or Google. Yeah.

Like, how do you square that? When you look at Microsoft Azure, clearly it's a $70 billion business growing at 30%. Google Cloud is more $50 billion run rate, close to that, growing exponentially.

At mid 35%, but that growth seems to have come down. And when you look at Amazon cloud, it's north of $100 billion growing at high teens. So clearly, everyone had their kind of swim lanes in terms of the expectations and what kind of growth number they're supposed to achieve.

But in this case, the fact that there was a slight miss kind of puts that logic into question. I still think, you know, it comes down to the compute availability and NVIDIA GPUs not being available that quarter. And the fact that they're raising the CapEx is a sign that they believe the cloud business will continue to grow. So if you'd seen a retrenchment in CapEx, you would have said, wait a minute, there's something happening potentially. Yeah.

And they don't want to miss out on that because this is the market where cloud businesses will really accelerate. Even with the deep seek efficiency and everything that has been talked about, Google should be the best position. Like I said, they have their own TPUs. They should be able to benefit from the efficiency. And so that should translate into faster cloud growth. If that's not the case, I expect this sort of reaction. And maybe that will be the case tomorrow.

Great stuff. Listen, we're going to be following all of your reporting and research throughout the evening. So, Mandeep, thank you so much. Mandeep Singh, Senior Tech Industry Analyst here at Bloomberg Intelligence. We are not done with Alphabet. Let's bring in Caroline Hyde, the co-host of Bloomberg Technology on Bloomberg TV. Just to recap, everybody, Google's revenue in its search, advertising, and YouTube business was better than forecast.

But it looks like traders are focused on that Google Cloud revenue number. It was 1.9% below the consensus forecast. Google Cloud operating income was a 2.7% beat at $2.1 billion, up from $864 million a year earlier. Caroline, why the stock slide? Mandip made the point of YouTube, and YouTube specifically subscriptions. What are you looking at? I think it is, to your point, cloud. The

the capex that's being spent on cloud. But ultimately, remember, this is exactly what happened to Microsoft. Microsoft beat on its fiscal quarter. But the fact that we saw a one percentage point drop quarter on quarter in terms of revenue growth from the cloud as your business was enough to wipe out all of those

from actually the beat across the revenue and overall profitability. So I think, again, it's why are you not delivering on the growth area? Why are you seeing 30% increase in Google Cloud revenues rather than the higher anticipation? And I wonder if, to Mandit's point, it will be because they were limited in scale. The supply side is the issue here, not the demand side.

Well, and they did say AI-powered Google Cloud portfolio has stronger demand. So they're kind of putting that out. It almost feels like you want some clarification about, okay, so give us a little bit more color about what's going on here. And this is why the calls have been so important. Remember we sat here and Apple's numbers came out, stock dropped, then suddenly Tim Cook comes on, all buoyant. Meta does the same. They were incredibly late. Their numbers did miss on a forward-looking forecast. But again, they came on and talked so optimistically about the opportunity. If Sundar Pichai gets it right...

and says, look, we're still just ultimately limited on our capacity thus far, but bear with us. We're investing big time. We have got the one-stop shop for vertically integrated generative AI. We are making the language model. We're making our chips. We're providing it, and it's making our search product still so fabulous. He has an ability to navigate some of the thornier questions around antitrust, around China and geopolitics.

MARK BLYTH: Hey, look, Amazon shares reached a new record today. But after hours, they're down about 1.4%, kind of a knee-jerk reaction in sympathy with what we heard from Alphabet. Does today's report tell us anything about what we'll hear from Amazon on Thursday when it comes to the cloud? MELANIE WARRICK: I mean, who knows whether some of the slowdown in Google is an opportunity for Amazon, who had bigger scale in data centers. But again, we've heard from Matt Garman over at AWS before talking of this need to get the Nvidia chips.

And perhaps these delays you've had to Blackwell, for example, and the rollout has been a supply side thorn in the side for a lot of these businesses. And that's why they're turning to their own chip designs and why Broadcom is on the upside because maybe with bigger CapEx from Alphabet,

it's going to yet again be winning out in terms of business as companies like cloud or providers want to depend on their own supply side too. I think there's going to be a knee-jerk reaction, as you say, but Amazon's got a very different business model in terms of advertising as well. Caroline, I have to roll some other things in. First of all, let's remind everybody that shares of Alphabet are down about 6.25% here in the aftermarket. So they've kind of settled at this level. And I assume as soon as the call comes, we could see some movement in the stock once again. But it's coming in a day where U.S.-China telecommunications

against one another. China's retaliatory actions included launching an antitrust investigation to Google. Extraordinary. And then just earlier, we had Alphabet come out and say Google's removed a passage from its AI principles that pledged to avoid using the technology in potentially harmful applications such as weapons. There's just so much here to unpack. First of all, the retaliatory actions by China. And how are you kind of rolling that? Is that just...

I mean, the stock ended the day at a record high. So people really felt that, yes, this is an Android issue most largely, but this is the game of tit for tat. And ultimately, it's not going to affect their business model too much in the longer term. So I think you're right, though, to fold in maybe the Palantir element of all of this. Look, that has been the software bet for generative AI over the last year. And they are all around defense, around the focus on generative AI and what it can do for government. And it has been a limitation in the past for Alphabet and Google. But people like that...

starts, the Andrews coming in here being like, you need to be OK with making this sort of generative AI innovation. Before we let you go, AMD is out with results. Shares in the after hours are higher by about 3.4%. The company sees first quarter revenue coming in at 6.8 billion to 7.4 billion. Shares climbing as first quarter sales view tops estimates at midpoint. Your knee jerk reaction to AMD?

A relief. They needed to assure their investor base. Lisa Su has been under a lot of duress because data center server provision, ultimately AI accelerators, have not been able to match the prowess of NVIDIA. Everyone feeling, in fact, there have been analysts after analysts downgrading the stock, worrying that they just aren't there when it comes to a real competitor. But the fact that she's able to deliver in margins, the fact that she's still saying like a competitor,

I'm focused on R&D and expenses coming in perhaps a little bit higher there. But they need R&D. They need to focus on the AI accelerator because they're being really tough competition in the world of PC and other. And remember, you and I aren't buying PCs as much as we used to. All right. Great stuff. I mean, God, moving around. Caroline, thank you so much. Caroline Hyde, of course, co-host of Bloomberg Technology and Bloomberg TV. Catch her at 11 a.m. Wall Street time on Bloomberg Television.

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