Alphabet said it will increase capital spending to as much as $185 billion this year, a figure substantially higher than the roughly $120 billion investors had been anticipating. Executives pointed to robust demand in core areas - notably search advertising and Google Cloud - as the financial foundation for the enlarged investment plan.
Analysts at Morgan Stanley interpret the surge in capital deployment as evidence that artificial intelligence is enhancing both user engagement and monetisation across the companys primary products. In the most recent quarter, search revenue rose 17% while cloud sales expanded 48%, figures that the analysts say support the decision to accelerate investment.
Meta offered a parallel signal in its own guidance. The social media company forecast annual capital expenditures of $135 billion, citing improvements in advertising effectiveness tied to AI. That parallel reinforces the notion that major digital-advertising platforms are seeing measurable benefits from AI-related initiatives.
Not all large technology firms have been able to convince investors of the near-term value of stepped-up capital spending. Microsoft reduced its capital spending and saw its market value decline by more than $350 billion after its cloud business did not meet investor expectations. Amazon also faces the challenge of sustaining strong growth at Amazon Web Services while continuing to expand its data-center capacity.
Alphabet itself reported a sharp jump in cloud backlog, which the company and analysts view as an indicator that demand for AI infrastructure and tools has been building. That rising backlog offers some justification for the expanded capex plan, since additional capacity and tooling are required to support AI workloads.
However, the cost impact is immediate. Morgan Stanley estimates that free cash flow per share could fall by 58% in 2026 and by as much as 80% in 2027 as the higher levels of capital spending take effect. From that perspective, Alphabet is effectively exchanging near-term cash returns for a more aggressive long-term position in AI infrastructure and services.
The company finds itself between two potential outcomes. On one hand, the growth in advertising and cloud revenue suggests early returns from AI investments. On the other hand, the substantial scale of spending raises execution risk - if the new capacity generates sustained revenue growth, the decision will be viewed as prescient; if revenue momentum slows, Alphabet could face a thinner cash cushion and elevated expectations to justify the outlays.
For now, Alphabet is proceeding on the premise that prioritising spending is necessary to maintain leadership. Investors and market participants will be watching subsequent performance closely for evidence that the returns on this expanded investment program keep pace with the scale of capital deployment.