Google blows nearly everything out of the water — including its AI budget

Wall Street came into Wednesday looking for earnings proof that Google $GOOGL can grow in the AI era without breaking its own margins. After the bell, its parent company Alphabet obliged — Search rose, Cloud surged, profits followed. And then — almost as if the company didn’t trust the market to stay focused — Google handed investors a number so large it hijacked the conversation within minutes: a 2026 capital spending plan that reads like a geopolitical project.

The market wasn’t sure what to do with that: Shares fell and then rose and then dipped and then leveled out and then rose 3% about 30 minutes after the print.

But first, start with the part Wall Street claims to care about: results. Alphabet’s fourth quarter brought in $113.8 billion in revenue, up 18% year over year, and $2.82 in earnings per share, up 31%. Before the print, investors had been modeling something closer to $111.3 billion in revenue and an adjusted EPS around $2.64, so Alphabet didn’t just clear the bar; it left it behind. Net income climbed to $34.5 billion. Google Services — the sprawling profit machine that includes Search, YouTube, Android, Chrome, and the rest of the consumer empire — grew 14% to $95.9 billion. Search and other revenue rose 17%, so for all of the noise about generative AI turning search boxes into nostalgia, Google’s tollbooth is still collecting. Search looks like it has found a way to absorb the AI era without surrendering its cash register.

The softer spot, as usual, was the more old-school ad plumbing: Google Network revenue slipped 2% to $7.8 billion, a reminder that not every ad surface ages gracefully. YouTube also did its job. Ads grew 9% to $11.4 billion — not a breakout, not a slump, just steady. But no one watching the print came in expecting YouTube to be spectacular. They just wanted to see whether the core machine was humming and whether the next machine was turning on.

If the story ended here, the market’s reaction would be simple: This is what dominance looks like when it’s still getting bigger. But it didn’t end there, because perhaps the biggest surprise in the release wasn’t a revenue line. It was Cloud.

Google Cloud revenue jumped 48% to $17.7 billion — the kind of acceleration that stops being a segment update and starts being a plot twist. Better, Cloud operating income surged past $5.3 billion, more than doubling from the year-ago quarter, pushing operating margin to just over 30%. That’s what investors have been begging Big Tech to deliver: proof that the AI buildout isn’t just a bonfire of GPUs, but something that can throw off real profit while it scales.

The quarter wasn’t the problem

Alphabet’s results checked off most of the pre-print watchlist that tends to move the stock. Search? Still growing. Cloud? Growing faster, with margins expanding in a way that makes the AI story feel more like a business. YouTube? Steady. Even the company’s AI adoption framing came with big, glossy numbers: more than 750 million monthly active users for the Gemini app, and more than 10 billion tokens processed per minute through direct API usage.

There were, of course, some footnotes — because there are always footnotes. Alphabet’s EPS got a boost from investment gains, including a $2.3 billion gain on equity securities that the company said added about $0.15 to diluted EPS. “Other Bets” remained what it has always been: a bucket of ambition with a negative sign in front of it. Losses widened, and Waymo alone came with a $2.1 billion employee compensation charge that pushed expenses higher. You can call that the cost of moonshots. You can also call it a reminder that Alphabet isn’t merely an ad company with a side hustle; it’s a conglomerate that still enjoys spending money on the future, even when the future sends invoices.

None of that is what spooked investors.

The bill is the story

Alphabet’s capital expenditures in the fourth quarter nearly doubled to $27.9 billion. Then the company effectively told the market: This isn’t the peak. 

For 2026, Alphabet expects capex in the range of $175 billion to $185 billion — way, way, way above the roughly $115 billion to $120 billion the street was modeling. Yes: $175 billion. Read that again, slowly, the way investors did. On an earnings night where the company had every right to brag about margins and momentum, it chose instead to underline what it’s becoming: an infrastructure company, not in branding, but in behavior.

Investors love the idea of “AI everywhere” — right up until “AI everywhere” shows up as a capital plan that competes with small nations. Alphabet isn’t alone in spending aggressively (the entire Big Tech cohort is building — and building bigger), but Google is making the most explicit, most expensive statement of intent. Meta $META’s capex plan for the year is $115-135 billion; Microsoft $MSFT is spending about $37.5 billion in a single quarter right now.

You can already see the tension in the cash flow math. Operating cash flow rose 34% to $52.4 billion in the quarter, but free cash flow slipped to $24.6 billion because capex ate the incremental gains. Over the last 12 months, free cash flow was basically flat, up less than 1%. Alphabet can afford this. That’s not the point. The point is that Alphabet is asking investors to underwrite a new phase of the company’s identity, one where “discipline” is measured less by margins this quarter and more by conviction about what the next platform looks like.

There’s a version of this story that ends in triumph: Cloud keeps compounding, AI products become default habits, and the spend looks prescient — the price of buying the future before someone else does. There’s also a version where the returns arrive slower than depreciation, and Wall Street starts treating AI like a lifestyle choice with bad unit economics.

Tonight, Alphabet gave investors both stories at once. It delivered a quarter so strong that it could have ended the debate about whether Google can compete in AI, then immediately raised a different question: How comfortable are investors watching Google compete with a checkbook?

The quarter blew nearly everything out of the water. The capex plan blew up the mood. That may be the most honest snapshot of the AI era yet: The growth is real, the profits are real, and the spending is the part that makes everyone suddenly remember what “risk” means.