Capital expenditures—capex, meaning the big-ticket purchases that fund the data centers, servers, and power infrastructure undergirding the AI race—is fueling record-high, multi-trillion dollar tech valuations when investors think the spending is warranted. But companies get punished when investors worry they might not see returns that justify hundreds of billions in spending.
Alphabet is the latest example. During its Wednesday fourth quarter earnings call, CEO Sundar Pichai and chief financial officer Anat Ashkenazi revealed that the $4 trillion tech giant will spend between $175 billion to $185 billion in capex in 2026, possibly doubling the $91.4 billion it spent in 2025 and a far cry from the $52.5 billion spent as recently as 2024. In Q4 alone, Alphabet’s capex investment reached $27.9 billion.
The move is part of what Pichai described as maintaining a brutal pace to compete in AI, which is driving every single dominant player in the space—Alphabet, Anthropic, OpenAI, Meta, Microsoft, and others—to invest heavily in innovation and infrastructure in a fierce competition that shifts quarter to quarter.
“We are in a very, very relentless innovation cadence, and I think we are confident about keeping that momentum as we go through 2026,” Pichai said on the company’s Q4 earnings call Wednesday.
At the same time, when asked what keeps him up at night during the call, Pichai’s response showed his concern about the capex surge and the longer timeline needed to convert that investment into actual working data centers, to overcome power bottlenecks, increase chip manufacturing, and master the skills needed to make it all happen.
“I think specifically at this moment, maybe the top question is definitely around compute capacity [and] all the constraints—be it power, land, supply chain constraints,” Pichai said. “How do you ramp up to meet this extraordinary demand for this moment, get our investments right for the long term, and do it all in a way that we are driving efficiencies and doing it in a world-class way?”
Pichai admitted to investors that all those constraints will continue to be an issue for the Google DeepMind AI lab as well as for the company’s cloud services unit, despite the massive ramp up in spending and significant demand.
“I do expect to go through the year in a supply constrained way,” Pichai said.
Alphabet’s massive increase in AI infrastructure spending sets a new high water mark just one week after Meta stunned the Street by announcing plans to nearly double its capex to between $115 billion and $135 billion this year.
Investors seemed unsure how to react to Alphabet’s plans. The stock initially nosedived more than 6% in after hours trading Wednesday, then rose more than 2% as Pichai and his team spoke during the earnings call, only to dip slightly back into the red, down 0.4%.
The company beat Wall Street profit and revenue targets during the final three months of 2025, and delivered a record year, with annual revenues exceeding $400 billion for the first time ever, and net income growing 15% to $132.2 billion. YouTube crossed the $60 billion annual revenue threshold. The total number of subscriptions across consumer services rose to more than 325 million, fueled by cloud storage business Google One and YouTube Premium. Revenues from services rose 14% to $95.9 billion, driven in part by 17% growth in Google search.
The AI investment is ‘already delivering results’
Alphabet executives emphasized the various ways in which the hefty AI investments are translating into benefits for the company. Google users are searching more in AI mode than via traditional web searches, and they’re spending more time on Google’s sites, the company said. Business customers are taking advantage of Google Cloud’s AI capabilities and using more products in the portfolio.
“It’s already delivering results across the business,” CFO Ashkenazi said during the call, regarding the company’s AI spending.
According to Ashkenazi, the majority of Alphabet’s capex spend was invested in technical infrastructure, with about 60% going to servers and 40% to data centers and networking equipment. Ashkenazi said those investments support “frontier model development by Google DeepMind, ongoing efforts to improve the user experience and drive higher advertiser [return on investment] in Google services, significant cloud customer demand, as well as strategic investment and other bets.”
She added the cloud backlog—future contracted orders showing demand—rose 55% this quarter and more than doubled year-over-year, hitting $240 billion at the end of Q4.
The quarter capped off some major news from Alphabet in other areas. Last month, Google and Apple joined forces to announce the two behemoths will use Google’s AI to power up Apple’s Siri and other AI services. Apple has a reach that hits 2.5 billion devices, which could be huge for Gemini. This month, autonomous robotaxi subsidiary Waymo announced it had raised $16 billion in an investment round that valued the company at $126 billion, led by Alphabet.
Prior to Alphabet’s earnings release after Wednesday’s market close, a broader selloff dragged various tech stocks down for a second consecutive day. The tech selloff is due to fears that AI could disrupt software and data firms like Salesforce and ServiceNow.
Pichai addressed the issue on the earnings call, noting that AI is an “enabling tool,” and not necessarily a threat, and that the best companies will incorporate it into their workflows. This will make them better cloud customers, he said. “The companies who are seizing the moment, I think, have the same opportunity ahead,” said Pichai.
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