For Google and other tech titans, the rise of artificial intelligence remains a big focus for investors as the emerging technology reshapes the tech landscape, transforming the business of search, cloud and advertising, but it also comes with a cost.
Shares of Google parent Alphabet fell more than 7% on Wednesday, a day after the company reported quarterly results. Despite beating expectations on many key metrics, the company said capital spending will jump in 2024 as it continues to invest in AI to improve its services.
“We do remain very committed to investing in the AI opportunity across Google DeepMind, Google services, Google Cloud,” Ruth Porat, the tech giant’s chief financial officer, told FOX Business’ Susan Li. “Capex was up in the fourth quarter to $11 billion, and that was overwhelmingly the investment in our technical infrastructure.”
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There are serious questions about how AI could impact Google’s ad business. Advertising remains a powerhouse for Alphabet, accounting for more than 50% of its total revenue. YouTube’s ad revenue grew 16% year over year, but overall ad spending has seen a pullback as advertisers rein in spending.
Alphabet’s ad revenue for the fourth quarter rose to $65.5 billion from $59 billion in the same period a year ago, just shy of analysts’ estimates, also adding to the selling pressure. Shares are marginally lower this year, compared to the Nasdaq Composite’s modest 1% gain.
However, Porat says evolving AI technology could contribute to success across Alphabet’s spectrum of services, including cloud computing, which earned its first-ever quarterly profit in 2023.
“The results reflect spreads across industry sectors; there is an increasing contribution from AI,” Porat said. “This is clearly an extraordinary time.”
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Google is expected to release its most advanced generative AI model, Gemini Ultra, later this year.