- Alphabet reported $96.47 billion Q4 revenue, below the market forecast of $96.7 billion
- First time revenue has come in below expectations in eight quarters
- Market worried about large capex guidance for fear it might be wasting money
- Search competition is heating up
- Google caught up in US/China trade war
“A raft of negative factors suggest that life is getting much harder for Alphabet. It is caught up in a whirlwind of competitive pressures, regulatory clampdowns and political interference,” says Dan Coatsworth, investment analyst at AJ Bell.
“Alphabet is being punished for missing quarterly revenue expectations for the first time since February 2023 and for going heavy on AI-related spending. Investors expect flawless execution from the tech giant, yet weaker than expected growth in cloud computing implies the AI craze isn’t automatically turning into big bucks for infrastructure providers.
“Equally worrying was the $75 billion guidance for capital expenditure. Previously, large capex would have been taken as a positive sign that Alphabet was doing everything it could to capitalise on the hot AI trend. Now the reverse is true. There are fears it might be digging itself a big hole and potentially wasting money if rivals like DeepSeek have shown it is possible to do things a lot cheaper.
“Alphabet’s Google operations have been king of the search world for several decades. The evolution of AI now threatens to knock Google off the top of the mountain. ChatGPT and Microsoft Copilot use AI-powered search to great effect and the more these services become embedded into people’s everyday lives – either through their personal devices or at work – the bigger the threat to Google.
“These chatbots operate on a conversational basis such as the user beginning their search by asking where they should go on holiday. After reading the suggestions, the user can ask more specific questions such as hotel recommendations and be served links to websites – tasks that Google has historically excelled at. The way in which everything is presented on a single page and a flow of information is particularly attractive and could make chatbots someone’s preferred way of searching.
“Alphabet has its own chatbot in the form of Gemini, yet this is not streets ahead of the competition in the way Google sits with traditional web search.
“It’s clear that Alphabet has to be one step ahead of the competition if it wants to remain the search king. That’s why it is trying to be a trailblazer on multiple levels such as picture search. Its Lens facility is proving to be a big hit, such as finding out where to buy a particular item of clothing that appears in a picture found on social media. Using your finger to draw a circle round something to get more information is also taking off, proving that Alphabet is not a one-trick pony when it comes to raising the bar in search.
“Alphabet has plenty of other things to worry about. External antitrust concerns are getting stronger by the day, and the US Department of Justice has suggested the company needs to be broken up as a way of stopping it being too dominant with search.
“There is also the big unknown that’s China. Alphabet has found itself caught in the trade war crossfire between China and the US, with Beijing announcing antitrust investigations into Google.
“China has not taken kindly to Donald Trump’s increased tariffs on goods imported into the US and it’s looking for ways to get back at the new president. Google’s search platform, YouTube and Play Store aren’t available in China, but its Android operating system is available and Chinese companies can also advertise on Google and YouTube outside of China.
“Alphabet will need to hold its nerve and hope that China is simply playing games to get back at Trump, and that a compromise around tariffs can be reached soon, otherwise the tech giant could suffer collateral damage.”
