Good morning. Alphabet Inc., the parent of Google, is placing AI at the heart of its infrastructure to enhance products such as cloud services and search. Meanwhile, CFO Anat Ashkenazi is also betting on the technology to boost efficiency within the company.
As Alphabet expands its AI efforts, the company expects to increase investments in capital expenditure (capex) for technical infrastructure, primarily for servers, followed by data centers and networking, Ashkenazi said during the Q4 earnings call just after the bell on Tuesday.
“We expect to invest approximately $75 billion in capex in 2025, approximately $16 to $18 billion of that in the first quarter,” she said. That’s above the approximately $58 billion in capex for the year that analysts had been expecting. Alphabet also expects some headcount growth this year in “key investment areas such as AI and cloud,” Ashkenazi said.
Revenue for the quarter ending Dec. 31 was $96.5 billion, up 12% year over year, slightly missing analysts’ expectations of $96.6 billion. Net income for the quarter was $26.5 billion, a 28% increase from the year prior, which beat estimates. Alphabet shares fell about 8% in extended trading on Tuesday.
“Total revenues came in a bit light and the Street will worry that this along with massive capex is a bad combo,” Dan Ives, managing director at Wedbush Securities, told me Tuesday evening. “We disagree as this is an AI Arms Race and Alphabet is making the right moves at the right time. While this quarter was not a home run, we believe the stock down this much is an overreaction and we would be buyers.”
For Google Cloud, which offers AI products and services, revenue increased 30% year over year to $11.96 billion. However, analysts were expecting an increase of 32.3% to $12.16 billion, according to data compiled by LSEG. The growth rate in the previous quarter was 35%. The slowdown was partially due to a shortage of supply as Google doesn’t have enough capacity in its data centers to meet all the demand, Ashkenazi said on the call. In Q4, “Google Search & other” business accounted for 56% of the company’s $96.5 billion in revenue.
‘Not a one-quarter type of effort’
Ashkenazi began her tenure as CFO on July 31, joining the tech giant from an impressive career as finance chief at drugmaker Eli Lilly. On her debut earnings call in Q3 last October, she stated she intended to pursue efficiency. Ashkenazi noted the “good work” that her predecessor Ruth Porat, CEO Sundar Pichai, and the team did to “re-engineer the cost base.” She added: “But I think any organization can always push a little further and I’ll be looking at additional opportunities.”
On Tuesday’s Q4 earnings call, Ashkenazi mentioned optimizing the company’s real estate footprint and also simplifying the organization by bringing some of the AI research teams together, for example. She also emphasized the company’s strategy of using its own AI tools to run the business, whether it’s “writing code with AI or even running some of our key processes using AI tools.”
Ashkenazi also commented that the push for efficiency “is not a one-quarter type of effort.”
“It’s going to continue throughout the year, and we’re going to continue to focus on that so that we can support the growth in other areas,” she said.
SherylEstrada
sheryl.estrada@fortune.com
The following sections of CFO Daily were curated by Greg McKenna.
Leaderboard
Wissam Jabrewas appointed EVP and CFO of NetApp (Nasdaq: NTAP), a data management and storage company, effective March 10. He will succeed Mike Berry, who served as the company’s finance chief for the last five years. Jabre arrives from data storage company Western Digital, where he was EVP and CFO. Previously, he served as SVP and CFO of Dialog Semiconductor from 2016 until the company’s acquisition by Renesas Electronics in 2021. He has also held senior finance positions at Advanced Micro Devices, Freescale Semiconductor, and Motorola after beginning his career with oil drilling giant Schlumberger, where worked in engineering and finance roles.
Kyle Spina was appointed CFO of OFS Credit Company (Nasdaq: OCCI), which primarily invests in collateralized loans obligations and debt securities, effective March 31. He will replace Jeff Cerny, who announced his retirement as CFO and treasurer but will remain on the company’s board of directors. Spina has served as the company’s chief accounting officer since April 2023 and joined OFS as VP and controller of fund accounting and reporting in April 2021. He has held multiple controllership roles, serving as assistant controller of credit funds at Thoma Bravo after working at Fidus as a controller and accounting manager. Spina began his career in public accounting and was an audit manager at BDO.
Big Deal
Luxury spending in the U.S. has been on the decline in recent years, but a new report from the Bank of America Institute examines signs of early green shoots heading into 2025. American consumers appear to be taking advantage of a strong dollar and splurging more abroad. Brick-and-mortar card data showed that 13% of overall luxury spending took place outside the U.S. last year, increasing from 11% and 8% in 2023 and 2019, respectively.
Unsurprisingly, that growth has been driven by high earners, with a 10.5% uptick among the top 5% of households by income. That came in nearly five times stronger than the broader higher-income group. Meanwhile, high-end travel has grown as a proportion of overall luxury spending, which could continue if consumer travel demand and post-pandemic “revenge spending” behavior carries into 2025.
Going deeper
Alfred Winslow Jones may have been the father of the first hedge fund, but it was legendary Fortune reporter Carol Loomis who first coined the term in a 1966 profile of the millionaire investor. As Fortune celebrated its 95th birthday on Tuesday, Rachel Ventresca highlighted eight iconic phrases first coined by staffers down the years.
Overheard
“It would be great if we got to a web that was back to: Humans get content for free and bots pay a lot for that content.”
— Matthew Prince, CEO of cybersecurity company Cloudflare, toldFortune editor-in-chief Alyson Shontell in an interview at the World Economic Forum in Davos, Switzerland, about his vision for how AI companies should compensate publishers and other content creators.
