Tech Weekly: Cloud Growth Cools, AI Spending Heats Up

The market’s verdict was swift and unforgiving. In the wake of Alphabet’s latest earnings report, shares of the Google parent plummeted, wiping out billions in market capitalization. The reason? Not weak profits, but a combination of slowing growth in its cloud computing division and a staggering $75 billion spending plan for artificial intelligence in 2025. The Financial Times reported:

Alphabet shares dropped 8 per cent in New York morning trading on Wednesday, leaving it on track for the fifth-worst trading day in the past decade and wiping about $200bn from its market capitalisation.

This sharp sell-off reflects a growing unease among investors: Are the tech giants’ massive bets on AI justified, or are they pouring billions into a future with uncertain returns? The scale of the planned spending is immense: Alphabet announced $75 billion in capital expenditures for 2025, far exceeding the $58 billion that the market had anticipated. CEO Sundar Pichai said the investment is “directly driving revenue” because it helps the end customers.

This figure, exceeding even Wall Street’s already high expectations, underscores the intensity of the AI arms race currently underway in the tech industry. And Alphabet is not alone. Meta, too, has signaled its willingness to spend massively on AI. TechCrunch reported on Mark Zuckerberg’s commitment:

...CEO Mark Zuckerberg [pledge] that the tech giant would invest “very heavily” in AI — even “hundreds of billions of dollars” — over the long term, he said during Meta’s first-quarter earnings call on Wednesday. Zuckerberg already announced last week that Meta would spend more than $60 billion in 2025 alone on capital expenditures, primarily on data centers.

However, this massive spending is occurring against a backdrop of decelerating growth in big tech's core businesses. For Alphabet, the slowdown is most evident in its cloud division:

Google’s cloud computing division reported revenue of $12 billion in the fourth quarter, up 30.1 percent from a year earlier. In the third quarter, cloud revenue still grew 35 percent. Alphabet has not reported such a low growth rate since 2023.

This deceleration, mirrored in Microsoft’s cloud growth miss the previous week, raises concerns. Are these companies spending vast sums on AI infrastructure just as their traditional growth engines are beginning to sputter? While Alphabet CFO Anat Ashkenazi attributed the cloud slowdown to “more demand than we had available capacity,” the market reaction suggests investors are not entirely convinced.

The core concern is whether the returns from these massive AI investments will materialize quickly enough, or be substantial enough, to justify the current levels of spending. As Bloomberg noted, analysts are starting to question the business model:

Still, DeepSeek’s model is open to use, and Google’s costs money, raising concerns that its advantages in AI and search could “meaningfully erode” this year, Emarketer senior analyst Evelyn Mitchell-Wolf said via email.

The emergence of companies like DeepSeek, a Chinese startup that claims to have built a comparable AI model at a fraction of the cost, has further amplified these anxieties. 

The market is now pondering: are companies like Alphabet and Amazon destined to become the high-cost infrastructure providers for an AI revolution whose primary beneficiaries will be elsewhere?

In their defense, executives across the hyperscalers are adamant that these investments are essential and will pay off handsomely in the long run. Alphabet CEO Sundar Pichai, during the earnings call, expressed confidence that the spending is justified by the immense opportunity ahead:

The cost of actually using [AI] is going to keep coming down, which will make more use cases feasible. And that's the opportunity space. It's as big as it comes, and that's why you're seeing us invest to meet that moment.

Amazon CEO Andy Jassy echoed this sentiment, emphasizing the transformative potential of AI:

If you believe that plus altogether new experiences that we've only dreamed about are going to actually be available to us with AI, AI represents, for sure, the biggest opportunity since cloud and probably the biggest technology shift and opportunity in business since the Internet. And so, I think that both our business, our customers, and shareholders will be happy medium to long term that we're pursuing the capital opportunity and the business opportunity in AI.

However, for now, the market remains skeptical. The sell-offs of Alphabet and Microsoft shares serve as a stark reminder that even for tech giants, investor patience is not infinite. The pressure is now on these companies to demonstrate, in concrete terms, how their massive AI spending will translate into revenue growth and, ultimately, shareholder returns.

Tech & Politics

Palantir’s ‘Revolving Door’ with Government Spurs Growth

Palantir, the data intelligence giant chaired by billionaire Peter Thiel, is capitalizing on a well-connected network of former public officials and policymakers. A report by the Financial Times illustrates how the company’s hiring of ex-government insiders — many with deep ties to the Pentagon and Washington— has played a pivotal role in securing multibillion-dollar contracts, including AI initiatives and defense deals in both the US and UK.

By cultivating relationships through increased lobbying, nonprofit foundations, and advisory positions, Palantir has established itself as a top choice for government agencies seeking contracting partners. Critics argue the company’s revolving-door hiring strategy grants it unparalleled influence in guiding policies and winning lucrative government contracts, while Palantir asserts that its market-leading data analytics solutions drive its success across both the public and private sectors.

Quick Hits

• Workday Cuts Jobs in AI Pivot: Workday is laying off 8.5% of its workforce (around 1,750 jobs) as the company restructures to focus on artificial intelligence and strategic global expansion.
• OpenAI's "Stargate" Data Center Push: OpenAI is scouting locations in the US for massive data centers, codenamed "Stargate," to support its ambitious AI projects, with Texas positioned as a flagship site in partnership with SoftBank.
• DeepSeek AI Demand Strains Servers: Surging popularity of Chinese AI startup DeepSeek's latest models, rivaling ChatGPT, has led to server capacity issues and temporary halting of account top-ups, highlighting the intense demand.
• Roblox Stock Plummets on User Miss: Roblox shares tumbled over 16% after the gaming platform missed Wall Street's estimates for bookings and daily active users, raising concerns about growth deceleration.