Alphabet stock falls after missing revenue expectations despite strong momentum
The Google parent reported revenues of $96.5 billion for the fourth quarter — a 12% increase year over year. Alphabet reported earnings of $2.15 per share — up 31% from the previous year, and net income of $26.5 billion for the quarter ended in December.
'Q4 was a strong quarter driven by our leadership in AI and momentum across the business,' Alphabet chief executive Sundar Pichai said in a statement. 'We are building, testing, and launching products and models faster than ever, and making significant progress in compute and driving efficiencies.'
The company was expected to report revenues of $96.7 billion for the fourth quarter of 2024, according to analysts' estimates compiled by FactSet (FDS). Net income was expected at $26.2 billion, while analysts estimated earnings of $2.13 per share.
Alphabet stock was up by around 2.5% at the market close on Tuesday. After reporting the revenue miss, Alphabet shares plunged by more than 7% in after-hours trading. The company's shares are up by 9% so far this year.
Pichai said the company's artificial intelligence-powered Google Cloud solutions saw stronger demand from customers such as Mercedes-Benz in the fourth quarter. The results 'show the power of our differentiated full-stack approach to AI innovation and the continued strength of our core businesses,' he added.
Alphabet plans to invest around $75 billion in capital expenditures this year, Pichai said.
'While AI investments are fueling the company's strong capex commitments the market is questioning the pace of monetization,' Jesse Cohen, senior analyst at Investing.com, said in a statement shared with Quartz. 'Alphabet's big drop in after-hours trading reflects investor disappointment in its dual challenges: Google Cloud's growth slowdown and persistently high capex without immediate returns.'
Bank of America (BAC) analysts said in a note on Friday that they were expecting Alphabet to meet or beat fourth quarter expectations 'with potential upside' from its advertising business. The analysts also said they believe Wall Street 'is likely underestimating potential for AIOs [AI Overviews] to drive Search monetization strength in 2025.'
Dave Heger, communications services analyst at Edward Jones, said in a post-earnings note that the company 'is well-positioned to deliver solid long-term growth across its search, YouTube, ad-technology and cloud-computing businesses' as it continues to integrate AI into these services.
'We believe that Google's Gemini generative-AI platform will enable it to benefit from future AI adoption and new AI applications,' Heger said.
In December, Google unveiled Gemini 2.0 — it's 'most capable' artificial intelligence model so far for the 'new agentic era.'
Gemini 2.0's multimodal features, such as native image and audio output, 'will enable us to build new AI agents that bring us closer to our vision of a universal assistant,' the company said.
Meanwhile, Demis Hassabis, founder of Alphabet's drug discovery subsidiary, Isomorphic Labs, said last month that its AI-designed drugs are expected to head to trial by the end of the year.
'AI applied to science is a lot richer than just the language models,' Hassabis, who also serves as chief executive of Google DeepMind, said during a panel at the World Economic Forum in Davos, Switzerland. 'We'll hopefully have some AI-designed drugs in the clinic by the end of the year. That's the plan.'
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