Google Makes All-Out Effort to Consolidate Its Leading Position in Artificial Intelligence

The motto for the current artificial intelligence race should be: When you have capital, invest boldly.

This is precisely the core philosophy Meta adhered to when it released its fourth-quarter financial report last week. The parent company of Facebook and Instagram announced plans to increase its capital expenditures this year to as much as $135 billion, compared to about $72 billion last year. This week, the company raised the stakes even further, unveiling an annual expenditure plan of up to $185 billion—about double its spending from last year.

Currently, Google's annual revenue has surpassed $400 billion, roughly double that of Meta. Even so, for a company whose business lines have been firing on all cylinders recently, this new spending target remains astonishing. After releasing its fourth-quarter financial report and holding an analyst conference call, Alphabet, Google's parent company, saw its stock price drop in after-hours trading this Wednesday.

Google possesses both the political and financial capital needed to make this bet. The company's Gemini 3 model has placed it at the top of AI model performance rankings, and the unparalleled distribution capabilities of products like Google Search and Gmail have greatly accelerated the adoption of this model. This Wednesday, Google revealed that its Gemini App now boasts over 750 million monthly active users, which is only a portion of the total user base for the Gemini series models.

With the enthusiastic market response to Gemini and Google's recent legal victory against a breakup lawsuit from the U.S. federal government, investors have been buoyed—especially given the persistently sluggish market sentiment in the tech and artificial intelligence sectors. Over the past three months, Alphabet's stock price has surged approximately 20%, while Nvidia and Broadcom have all seen declines over the same period.

However, actual financial strength is equally crucial, and this is where Google's business model demonstrates its greatest value. Google's advertising business has long been a lucrative cash cow, still maintaining double-digit growth, with momentum accelerating further—advertising revenue grew 14% year-over-year in the fourth quarter, up from 13% in the previous quarter. The company's cloud computing division performed even better, with revenue soaring 48% year-over-year to reach $17.7 billion. Google Cloud has not achieved such high growth rates since early 2021, when the business was less than a third of its current size.

In the fourth quarter, Google Cloud achieved a record $5.3 billion in operating profit, exceeding Wall Street expectations by 45%. According to data from S&P Global Market Intelligence, in 2025, Google's various thriving businesses will generate nearly $165 billion in operating cash flow, ranking first among S&P 500 component companies.

This stellar performance will help investors digest Google's latest investment plans. But allocating up to 40% of annual revenues to AI chip and related infrastructure construction is still a sizable gamble. Such investments will significantly increase depreciation expenses. In the just-ended fourth quarter, depreciation expenses reduced the company's net profit by 18%. Moreover, today's Google no longer enjoys the valuation advantage it had less than a year ago: at that time, concerns about a potential breakup kept its forward price-to-earnings ratio below 16.

Now, that price-to-earnings ratio has nearly doubled, while concerns about how artificial intelligence might disrupt established tech giants—including Google, Microsoft, and Amazon’s core clients, such as various cloud software service providers—are mounting. Although Google's own business is currently running smoothly, the interconnected nature of its operations means that it ultimately cannot remain unaffected.

Editor: He Yun