Alphabet disappoints Wall Street 📉Shares down 7% after Q4 2024 earnings report

Shares of US technology giant Alphabet (GOOGL.US), the company behind the Google search engine, are down 8% following its Q4 2024 earnings report. Despite a very solid report, Wall Street remained unimpressed, prompting investors to take profits and push the stock down from its all-time highs. The company missed revenue expectations and only slightly beat the projected earnings per share. Additionally, investors might be concerned that the record-high CAPEX for 2025 could negatively impact the company's profitability.

Investors do not seem fully satisfied with Alphabet's profitability improvements, despite massive investments in AI. Google Cloud Platform (GCP) revenue increased by 30% year-over-year, but this fell short of the expected 35% YoY growth. Meanwhile, in its earnings commentary, Alphabet stated that its results partially reflect efficiency gains driven by AI. The combined revenue from Google and YouTube exceeded $110 billion.

Alphabet’s Q4 2024 Financial Results

• Revenue: +12% YoY to $96.5 billion, vs. estimated $96.2 billion
• Earnings per share (EPS): $2.15, vs. estimated $2.13
• Operating margin: 32%, up 5 percentage points YoY, beating the forecasted 31.9%
• Google Cloud revenue: +30% YoY to $12 billion
• Google advertising revenue: $72.46 billion, vs. estimated $71.73 billion
• Google Cloud revenue: $11.96 billion, missing the $12.19 billion estimate, but with an 18% operating margin (up 8 pp YoY)
• Google Search & Services revenue: $54.03 billion, beating the estimate of $53.29 billion
• YouTube ad revenue: $10.47 billion, exceeding the forecasted $10.22 billion, with 13.8% YoY growth
• Google Network revenue: $7.95 billion, below expectations of $8.14 billion
• Google Subscriptions, Platforms, and Devices revenue: $11.63 billion, missing estimates of $12.03 billion
• Other Bets revenue: $400 million, significantly below the estimated $591.9 million

• Operating income: $30.97 billion, up 31% YoY, exceeding the estimate of $30.72 billion

Google Services OI: $32.84 billion, beating expectations of $32.32 billion

Google Cloud OI: $2.09 billion, above the $2.04 billion estimate

Operating loss in "Other Bets" OI: -$1.17 billion, compared to the expected -$1.21 billion

• Capital expenditures in Q4: $14.28 billion, vs. estimated $13.21 billion

Massive CAPEX Spending for 2025 

For the tech sector, the most critical takeaway from Alphabet’s earnings is its plan to invest a record-breaking $75 billion in capital expenditures (CAPEX) in 2025, significantly exceeding the expected $57.9 billion. This decision comes despite DeepSeek's AI breakthrough and should help ease concerns about a potential slowdown in AI infrastructure investments, particularly as China intensifies its AI race.

However, despite these ambitious investments, the market reaction has been negative. Following Alphabet and AMD’s earnings, the US100 index dropped from nearly 21,700 to 21,580 points. AMD (AMD.US) reported 24% YoY revenue growth in Q4 2024 and a 42% YoY increase in EPS, yet the stock fell over 5% as the company barely met investor expectations.

Source: xStation5