Capital expenditures, known as capex, which refers to the large – scale purchases that fund the data centers, servers, and power infrastructure underlying the AI race, are driving record – high, multi – trillion – dollar tech valuations when investors believe the spending is justified. However, companies face negative consequences when investors worry that the hundreds of billions in spending may not yield sufficient returns.
Alphabet is the latest example. During its Wednesday earnings call, CEO Sundar Pichai and chief financial officer Anat Ashkenazi revealed that the $4 trillion tech giant will spend between $175 billion and $185 billion on capex in 2026, potentially doubling the $91.4 billion it spent in 2025 and far more than the $52.5 billion spent as recently as 2024. In Q4 alone, Alphabet’s capex investment reached $27.9 billion.
This move is part of what Pichai described as maintaining a breakneck pace to compete in AI. The AI race is compelling every single player—Alphabet, Anthropic, OpenAI, and others—to make substantial investments in innovation and infrastructure in a cut – throat competition that changes from quarter to quarter.
“We are in an extremely relentless innovation cycle, and I believe we are confident about sustaining that momentum as we progress through 2026,” Pichai said on the company’s Q4 earnings call on Wednesday.
At the same time, when asked what keeps him awake at night during the call, Pichai’s response indicated his concerns about the surge in capex and the longer time frame required to transform that investment into fully operational data centers, overcome power bottlenecks, increase chip manufacturing, and master the skills necessary to achieve all of this.
“I think specifically at this moment, perhaps the most pressing question is definitely related to compute capacity and all the constraints—whether it’s power, land, or supply – chain constraints,” Pichai said. “How do we scale up to meet this extraordinary demand at this time, make the right long – term investments, and do it all in a way that maximizes efficiency and is of world – class quality?”
Pichai admitted to investors that all those constraints will continue to be a problem for Google’s AI lab as well as for the company’s cloud services unit, despite the significant increase in spending and strong demand.
“I do expect to operate under supply constraints throughout the year,” Pichai said.
Alphabet’s substantial increase in AI infrastructure spending sets a new high just one week after another company announced plans to spend between $115 billion and $135 billion this year.
Investors seemed uncertain how to respond to Alphabet’s plans. The stock initially plunged more than 6% in after – hours trading on Wednesday, then rose more than 2% as Pichai and his team spoke during the earnings call, only to dip slightly back into negative territory, down 0.4%.
The company exceeded Wall Street’s profit and revenue targets in the final three months of 2025 and had a record – breaking year. Annual revenues exceeded $400 billion for the first time ever, and net income grew 15% to $132.2 billion. [Some business unit, not specified in the original text] crossed the $60 billion annual revenue threshold. The total number of subscriptions across consumer services rose to more than 325 million, driven by the cloud storage business Google One and YouTube Premium. Revenues from services rose 14% to $95.9 billion, partly due to a 17% growth in Google search.
The AI investment is ‘already delivering results’
Alphabet executives emphasized the various ways in which the large – scale AI investments are bringing benefits to the company. Google users are conducting more searches in AI mode than through traditional web searches and are spending more time on Google’s sites, the company said. Business customers are leveraging Google Cloud’s AI capabilities and using more products from the portfolio.
“It’s already generating results across the business,” CFO Ashkenazi said during the call regarding the company’s AI spending.
According to Ashkenazi, the majority of Alphabet’s capex was invested in technical infrastructure, with about 60% going to servers and 40% to data centers and networking equipment. Ashkenazi said those investments support “frontier model development by Google DeepMind, ongoing efforts to enhance the user experience and drive higher advertiser return on investment in Google services, significant cloud customer demand, as well as strategic investment and other initiatives.”
She added that the cloud backlog—future contracted orders indicating demand—rose 55% this quarter and more than doubled year – over – year, reaching $240 billion at the end of Q4.
The quarter ended with some major news from Alphabet in other areas. Last month, Google and [a company not specified in the original text] announced that the two giants will use Google’s AI to enhance Apple’s Siri and other AI services. Apple reaches 2.5 billion devices, which could be a huge opportunity for Gemini. This month, autonomous robotaxi subsidiary Waymo announced that it had raised $16 billion in an investment round that valued the company at $126 billion, led by Alphabet.
Prior to Alphabet’s earnings release after Wednesday’s market close, a broader sell – off pulled down various tech stocks for a second consecutive day. The tech sell – off is due to concerns that AI could [a negative impact not specified in the original text] data firms like [firms not specified in the original text].
Pichai addressed the issue on the earnings call, noting that AI is an “enabling tool” and not necessarily a threat, and that the best companies will integrate it into their workflows. This will make them better cloud customers, he said. “The companies that are seizing the moment, I think, have the same opportunity ahead,” said Pichai.