Google’s Strong Ad Sales Overshadowed by AI Doubts

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Google’s digital ad sales saw strong growth during the holiday season, but investor concerns over the profitability of its AI investments dampened enthusiasm. Alphabet Inc., Google’s parent company, reported earnings for the October-December quarter on Tuesday, showing continued profit gains from its search engine and other services.

The company posted a net income of $26.5 billion, or $2.15 per share, marking a 28% year-over-year increase. Revenue climbed 12% to $96.5 billion, slightly missing analyst projections, though earnings exceeded expectations, according to FactSet Research.  

A key concern was the underwhelming revenue growth in Google Cloud, which plays a significant role in the company’s AI-driven ambitions. This disappointment triggered an 8% decline in Alphabet’s stock price, wiping out earlier gains that had pushed the stock to an all-time high earlier that day.  

“The reaction highlights fears that competitors like Microsoft, with its OpenAI partnership, may be better positioned to turn AI hype into revenue,” noted Investing.com analyst Jesse Cohen.  

Despite these worries, AI-generated overviews in Google Search appear to be boosting advertising revenue. Ad sales surged 11% to $72.5 billion, surpassing analyst expectations. According to Jim Yu, CEO of BrightEdge, this AI integration keeps users engaged within Google’s search ecosystem longer, making them more valuable to advertisers.  

However, Alphabet’s heavy spending on AI development—expected to push capital expenditures from $60 billion last year to $75 billion this year—has raised questions, especially after China’s DeepSeek demonstrated a cost-effective approach to deploying similar AI technologies.  

During a conference call, Alphabet CEO Sundar Pichai reassured investors that the company’s AI investments are paying off by increasing search traffic and engagement across its services. “We’re in a great rhythm, building, testing, and launching products faster than ever before,” he emphasized.  

In a notable shift, Google recently revised its AI principles, removing previous commitments against deploying AI for weaponry and surveillance—policies that had been in place since 2018. Google has not publicly commented on the change, and Pichai did not address it during the call.  

Beyond AI concerns, Google faces mounting regulatory challenges in the U.S., its most lucrative market. A federal judge ruled last year that Google’s search engine operates as an illegal monopoly, raising the possibility that regulators could push for a breakup, including the forced sale of the Chrome web browser. Court hearings on potential penalties are set to begin in April, with a ruling expected later in the year.  

Additionally, Google is under legal scrutiny over its Play Store policies for Android apps and is appealing an order to dismantle restrictions. The company is also awaiting a decision in an antitrust trial in Virginia focused on its digital advertising network.

 

 

 

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