Analyst(s): Keith Kirkpatrick, Nick Patience
Publication Date: February 5, 2025
Alphabet’s Q4 2024 results highlighted strong ad revenue growth, with Search and YouTube outperforming expectations. However, Google Cloud’s revenue miss and a $75 billion capital expenditure forecast dampened investor sentiment, leading to a post-earnings stock decline.
What is Covered in this Article:
- Alphabet’s Q4 FY 2024 financial performance and key revenue drivers
- Strong Search and YouTube ad growth amid AI-driven engagement
- Google Cloud revenue shortfall and competitive pressures in cloud computing
- Rising AI investments, Gemini 2.0 expansion, and infrastructure spending
The News: Alphabet Inc. (NASDAQ:GOOGL) announced Q4 2024 revenue of $96.5 billion (in line with consensus estimates), showcasing a 12% year-on-year (YoY) growth driven by robust advertising revenue, while cloud growth showed signs of deceleration. The operating income grew by 31% YoY to $31 billion (1.9% above consensus), and the corresponding margin expanded to 32.1% (Q4 FY 2023: 27.5%). Net income rose by 28% YoY to $26.5 billion (1.2% above consensus). Diluted earnings per share (EPS) stood at $2.2 (Q4 FY 2023: $1.6), which was 1% above consensus estimates.
“Our AI-powered Google Cloud portfolio is seeing stronger customer demand, and YouTube continues to be the leader in streaming watch time and podcasts.,” said Sundar Pichai, CEO of Alphabet. “Together, Cloud and YouTube exited 2024 at an annual revenue run rate of $110 billion. Our results show the power of our differentiated full-stack approach to AI innovation and the continued strength of our core businesses.”
Alphabet Q4 2024: Ad Strength Overshadowed by Cloud Revenue Miss
Analyst Take: Alphabet’s latest earnings report reaffirms its dominance in digital advertising, with both Search and YouTube delivering above-expectation results. However, investor concerns surfaced as Google Cloud’s growth showed signs of slowing, and the company announced a hefty $75 billion capital expenditure forecast for 2025 – well above market expectations. While Alphabet remains at the forefront of AI integration, mounting competition from firms like DeepSeek and its ongoing infrastructure investments bring renewed scrutiny on capital allocation and near-term returns.
Segment Performance: Ads Outperform, but Cloud Weakness Raises Concerns
For Q4 2024, Alphabet posted $96.5 billion in total revenue, a 12% YoY increase, largely driven by Google Services. Search revenue jumped 13% YoY to $54 billion, exceeding estimates, as AI-driven features like Circle to Search and AI Overviews boosted user engagement. YouTube also outperformed, with ad revenue rising 14% YoY to $10.5 billion, aided by continued demand for video advertising and increased political ad spending during the US election cycle – particularly benefiting YouTube’s early push into podcasts.
On the other hand, Google Cloud revenue came in at $12 billion (+30% YoY), falling short of the $12.2 billion estimate. Alphabet’s CFO, Anat Ashkenazi, acknowledged that Google Cloud Platform (GCP) ended the quarter with more demand than available capacity, highlighting infrastructure constraints. While Google Cloud continues expanding, it still lags behind Amazon AWS and Microsoft Azure in market share, raising concerns about its ability to close the gap.
Meanwhile, Alphabet’s Other Bets segment – including Verily (life sciences) and Waymo (autonomous driving) – reported $400 million in revenue, down 39% YoY, significantly missing the $592 million projection. Although Waymo plans to expand into 10 new cities in 2025, this segment remains a financial burden, reinforcing Alphabet’s struggle to turn experimental ventures into sustainable revenue streams.
Google’s subscriptions, platforms, and devices revenue reached $11.6 billion for the fourth quarter of 2024, up from $10.8 billion for the same period a year ago, reflecting the company’s strength in workplace collaboration, which increasingly will incorporate AI technology.
AI Integration: Strengthening Competitive Moat Amid Rising Challenges
Alphabet is aggressively integrating AI across its ecosystem, leveraging its latest Gemini 2.0 generative AI model in Search, Android, and Google Cloud. The newly launched Circle to Search feature has significantly increased user engagement, reinforcing ad revenue growth. On the enterprise side, Vertex AI, Alphabet’s AI development platform, saw a 5x YoY increase in customers for the quarter and a 20x surge over the full year, highlighting growing demand for AI-driven workflows.
The company also introduced Flash 2.0, a more lightweight and efficient version of Gemini, designed for faster inference and lower latency. Unlike the full-scale Gemini 2.0, which supports multimodal and enterprise applications, Flash 2.0 is optimized for real-time AI applications. Already integrated into the Gemini app, it is now available to developers and external customers, extending Alphabet’s AI footprint.
However, the AI space is becoming more competitive. Chinese AI firm DeepSeek recently launched a high-performing model at significantly lower costs, posing a potential pricing threat to Alphabet. The debate over AI economics is heating up: while Microsoft CEO Satya Nadella referenced Jevon’s Paradox – arguing that AI efficiency will drive higher demand – Google CEO Sundar Pichai countered with the Pareto frontier of cost, performance, and latency, asserting that Google is leading in optimizing these trade-offs for efficiency and scalability.
Heavy Capex Raises Questions on ROI and Market Positioning
Alphabet’s planned $75 billion in capital expenditures (capex) for FY 2025 represents a 43% YoY increase, surpassing the $57.9 billion consensus estimate. This figure places it in line with Microsoft’s $80 billion but well above Meta’s projected $60–65 billion. Even Amazon, which operates on a different infrastructure model, is targeting a comparable $75 billion in capex.
In Q4 2024 alone, Alphabet spent $14.3 billion on capex, up from $13.1 billion in Q3 2024, with the bulk directed toward servers and data centers to meet soaring AI and cloud demand. CEO Sundar Pichai defended the aggressive investment, pointing to explosive AI workload growth, with customers consuming 8x more compute capacity than 18 months ago. He also highlighted Alphabet’s advancements in efficiency, claiming that its latest-generation data centers now deliver nearly 4x more compute power per unit of electricity compared to five years ago.
Looking Ahead: Balancing AI Expansion with Cost Discipline
Alphabet’s deepening AI adoption and cloud capacity constraints support its elevated capex strategy, but investor confidence will hinge on efficient execution and clear ROI. As AI reshapes the competitive landscape, Alphabet must walk a fine line between rapid innovation and financial discipline.
With AWS and Azure maintaining a lead in cloud services, the key question remains: will Alphabet’s massive AI investments translate into sustained revenue acceleration, particularly in Cloud? Investors will be watching closely in FY 2025.
Daniel Newman and his co-host of The Six Five Webcast, Patrick Moorhead of Moor Insights and Strategy discusses Alphabet’s earnings in their latest episode. Check it out here and be sure to subscribe to The Six Five Webcast so you never miss an episode.
Read the full press release on the Alphabet website.
Disclosure: The Futurum Group is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.
Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of The Futurum Group as a whole.
Other insights from The Futurum Group:
US Government Unveils $500B Stargate Alliance to Lead US AI Infrastructure Push
Alphabet’s Q3 2024 Earnings: AI Drives Revenue Growth and Expands Market Reach
Google Expands Cloud Backup Services with Vault for Secure Data Retention
Author Information
Keith has over 25 years of experience in research, marketing, and consulting-based fields.
He has authored in-depth reports and market forecast studies covering artificial intelligence, biometrics, data analytics, robotics, high performance computing, and quantum computing, with a specific focus on the use of these technologies within large enterprise organizations and SMBs. He has also established strong working relationships with the international technology vendor community and is a frequent speaker at industry conferences and events.
In his career as a financial and technology journalist he has written for national and trade publications, including BusinessWeek, CNBC.com, Investment Dealers’ Digest, The Red Herring, The Communications of the ACM, and Mobile Computing & Communications, among others.
He is a member of the Association of Independent Information Professionals (AIIP).
Keith holds dual Bachelor of Arts degrees in Magazine Journalism and Sociology from Syracuse University.
Nick is VP and Practice Lead for AI at The Futurum Group. Nick is a thought leader on the development, deployment and adoption of AI - an area he has been researching for 25 years. Prior to Futurum, Nick was a Managing Analyst with S&P Global Market Intelligence, with responsibility for 451 Research’s coverage of Data, AI, Analytics, Information Security and Risk. Nick became part of S&P Global through its 2019 acquisition of 451 Research, a pioneering analyst firm Nick co-founded in 1999. He is a sought-after speaker and advisor, known for his expertise in the drivers of AI adoption, industry use cases, and the infrastructure behind its development and deployment. Nick also spent three years as a product marketing lead at Recommind (now part of OpenText), a machine learning-driven eDiscovery software company. Nick is based in London.
