Alphabet Inc. shares fell more than 7% on Wednesday, marking their worst single-day performance in over a year, after the company missed Wall Street's revenue expectations and revealed higher-than-anticipated capital expenditures aimed at bolstering its artificial intelligence (AI) infrastructure.

The Google parent company reported fourth-quarter revenue of $96.47 billion, falling short of the $96.56 billion expected by analysts surveyed by LSEG. Earnings per share came in 2 cents above estimates, but slowing growth in key business segments-including YouTube advertising, Google Search, and cloud services-coupled with an aggressive $75 billion capital expenditure plan, rattled investors.

"This is a significant increase, and it shows that Alphabet is throwing the kitchen sink at its AI plans," said Kathleen Brooks, research director at trading platform XTB.

AI Investments Drive Spending to Record Levels

Alphabet's $75 billion capital expenditure plan-nearly 29% higher than the $58.84 billion Wall Street anticipated, according to FactSet-marks one of the largest investments in the company's history.

Chief Financial Officer Anat Ashkenazi stated the spending will be directed toward "technical infrastructure, primarily for servers, followed by data centers and networking."

For 2025, Alphabet expects quarterly capital expenditures to range between $16 billion and $18 billion, exceeding the $14.3 billion FactSet estimate.

The move comes as AI development heats up among Big Tech competitors, with Microsoft and Meta also committing billions to AI-focused initiatives.

Cloud Growth Slows, Raising Competitive Concerns

Alphabet's Google Cloud revenue rose 30% year-over-year to $11.96 billion, but growth slowed from the 35% jump in Q3. While it outpaced Amazon's projected 19% increase, it lagged behind Microsoft Azure's 31% rise.

Investors reacted negatively to the cooling momentum in cloud services, an increasingly important battleground for AI-driven applications.

JPMorgan analyst Doug Anmuth cited "costs, capex, and cloud revenue" as key concerns driving the stock's post-earnings drop.

Advertising Business Faces Social Media Competition

Alphabet's core advertising business, which accounts for the majority of its revenue, is facing heightened competition from Meta's Facebook and Instagram, as well as TikTok's ByteDance.

With advertisers shifting toward dynamic, video-driven social media platforms, Google is under increasing pressure to modernize its ad strategy while balancing its AI push.

Analysts Cut Price Targets, Stock Underperforms Peers

At least four brokerages have lowered their price targets for Alphabet's stock, bringing the median target to $220, compared to its current premarket trading price of $191.20.

Despite the recent decline, Alphabet's stock had risen 9% in 2024 through Tuesday, slightly trailing Amazon's 10.3% increase, but outperforming Microsoft's 2.2% decline.

Still, Alphabet remains the cheapest among the three tech giants, with a 12-month forward price-to-earnings ratio of 22.7, compared to Microsoft's 29 and Amazon's 39.