Alphabet Expands AI Infrastructure in 2026 Spending Push

Key Moments

Alphabet expects 2026 capital expenditure to reach $175–185 billion, nearly doubling from $91.45 billion in 2025.
Google Cloud revenue surged 48% to $17.7 billion in Q4, marking its fastest growth in over four years.
Gemini AI now serves 8 million paid enterprise seats across 2,800 companies and over 750 million monthly users.

Capital Spending Outlook Surges on AI Needs

Alphabet said on Wednesday that it may nearly double capital spending in 2026. The company plans one of its largest investment cycles to expand computing capacity and strengthen its AI position.

The company highlighted that investments in AI compute, including servers, data centers, and networking hardware, drive the $175–185 billion forecast. By comparison, 2025 capex totaled $91.45 billion. Analysts had expected roughly $115.26 billion, according to LSEG data.

Moreover, Alphabet and other tech giants are set to spend over $500 billion on AI this year. Meta raised its AI investment plan by 73%, while Microsoft reported record quarterly capex, showing how intense the industry buildout has become.

Investors, however, are focusing on whether the spending will produce strong returns. Alphabet pointed to ongoing AI momentum. Its stock has climbed 76% since early 2025.

“Our AI investments and infrastructure drive revenue and growth across the board,” CEO Sundar Pichai told analysts on a Wednesday conference call.

Market Reaction and Financial Performance

Alphabet shares moved sharply in after-hours trading. Initially, the stock fell 6% but later recovered to trade down about 1%. Investors weighed the higher spending against stronger-than-expected revenue and profit for the December quarter.

For Q4, Alphabet reported $113.83 billion in revenue, exceeding the $111.43 billion consensus. Adjusted EPS came in at $2.82, above the $2.63 estimate.

Metric (Quarter ended December)	Reported	Analyst Expectations (LSEG)
Total revenue	$113.83 billion	$111.43 billion
Adjusted EPS	$2.82	$2.63

Pichai noted that the company has faced infrastructure limits despite expansion efforts. “We’ve been supply-constrained even as we ramped up capacity,” he said. “This year’s capex targets the future.” He added that capacity constraints could continue through 2026.

Cloud Business Drives Strong Growth

Google Cloud was a major driver of Q4 performance. Revenue jumped 48% to $17.7 billion, surpassing analyst expectations and achieving the fastest growth in four years.

The cloud segment supports Alphabet’s large capex plans. Enterprises are increasingly deploying AI workloads on hyperscale infrastructure.

Analyst Gil Luria of D.A. Davidson said the cloud division grew faster than Microsoft Azure for the first time in years. “This supports Alphabet’s capex strategy,” he added.

Ethan Feller, Zacks Investment Research strategist, noted, “Cloud at 48% growth with expanding margins is no longer a ’show me’ story. Google now competes with Amazon and Microsoft, with AI driving enterprise demand.”

Business Segment	Quarterly Revenue	Year-over-year Growth
Google Cloud	$17.7 billion	48%

Gemini Reshapes AI Positioning

The November launch of Gemini 3 shifted perceptions of Alphabet in AI. Previously seen as a laggard, the company gained momentum. The launch reportedly prompted OpenAI to issue an internal “code red” for faster development.

Pichai said Gemini’s enterprise version has 8 million paying seats across 2,800 companies. He also highlighted a new Apple agreement, which will use Gemini to power Apple AI services in the cloud.

Executives point to the cloud unit as proof that AI investments can generate revenue. The recent quarter also shows growing confidence in AI contributions from search and other business lines.

Gemini User Adoption Expands

Gemini’s features are now integrated across Alphabet’s ecosystem. Pichai said the AI assistant app serves over 750 million monthly users, up 100 million since November.

Google also launched AI Mode in its search interface. Daily queries in AI Mode have doubled since launch.

The advertising business is benefiting as well. Google’s chief business officer, Philipp Schindler, said Gemini enables monetization of complex search queries that were previously difficult to target.

AI Investment Cycle and Industry Competition

Alphabet’s elevated capex fits a broader wave of AI spending among major tech firms. The company views its strategy as a response to capacity constraints and growing demand for AI services.

As Alphabet builds more servers, data centers, and networking equipment, it positions itself to compete with other hyperscalers. Strong Google Cloud growth, enterprise adoption of Gemini, and rising AI-enabled search and advertising usage show that spending aligns with real business opportunities.