Alphabet resets the bar for AI infrastructure spending

Alphabet, the parent company of Google, has surpassed Wall Street's expectations for its fourth quarter, yet it has raised eyebrows with its ambitious forecasts for artificial intelligence infrastructure spending. Despite reporting better-than-expected revenue and earnings per share, Alphabet's stock experienced a decline during after-hours trading on Wednesday, signaling Wall Street's cautious stance on increased AI expenditures. The company has projected capital expenditures for 2026 to be between $175 billion and $185 billion, which would more than double its spending from 2025. This substantial forecast marks a shift in expectations for how Alphabet intends to allocate funds in the coming years, placing it in direct competition with its hyperscaler counterparts. In a recent quarterly report, Microsoft did not provide specific spending predictions for the upcoming year but indicated a decrease in capital expenditures this quarter, following a $37.5 billion spend in the last reporting period. Meanwhile, Meta anticipates spending between $115 billion and $135 billion in 2026, almost doubling its previous year's expenditure of $72.2 billion, while Amazon's expected capex for 2025 stands at approximately $124.5 billion with a projected 18% increase this year. Alphabet's rising spending comes during a time when Wall Street has expressed heightened concern regarding additional investments in AI. Despite positive earnings within the tech sector, the software industry as a whole has seen a 30% decline in value over the past three months, attributed to fears that AI advancements could disrupt existing software solutions and lead to riskier financial commitments. So far, Alphabet has managed to avoid significant stock fluctuations and was identified as one of the top performers in 2025. However, as the demand for AI services continues to grow, tech companies are racing to enhance their infrastructure. Notably, Google's cloud unit, which supports the majority of its AI offerings, reported a staggering 55% sequential increase in backlog, more than doubling year-over-year to reach $240 billion at the end of the fourth quarter. Alphabet's CFO, Anat Ashkenazi, outlined how the planned 2026 capex will be allocated, emphasizing investments in AI computing capacity for Google DeepMind and addressing substantial cloud customer demand. Additionally, she highlighted that these funds would enhance user experiences and improve return on investment for advertisers using Google services. In detailing the previous year’s expenditures, Ashkenazi noted that around 60% of capital investments were directed toward servers, with 40% going toward data centers and networking equipment. During the call, executives also celebrated the success of Google's flagship AI application, Gemini, which has seen its monthly active users rise to 750 million, up from 650 million. CEO Sundar Pichai underscored the partnership with Apple to revamp the Siri assistant using Gemini's AI models, reinforcing that Apple has selected Google as its preferred cloud service provider. When questioned about concerns, Pichai mentioned "compute capacity" as a primary worry, highlighting challenges regarding power, land, and supply chain limitations that need to be addressed to meet the extraordinary demand for AI. In December, Alphabet announced plans to acquire data center firm Intersect for $4.75 billion, including debt assumptions. Pichai's remarks echoed concerns about the necessity for rapid expansion, with Google's AI infrastructure chief, Amin Vahdat, noting that the company must double its serving capacity every six months to meet the surging demand for AI services. Vahdat emphasized that competition in AI infrastructure is both critical and costly in the ongoing AI race.