Alphabet (GOOG 0.60%) (GOOGL 0.54%) delivered solid results across the board in its fourth-quarter earnings report on Wednesday night. However, after the stock had doubled in the last six months, it wasn't enough to keep the rally going, especially as the AI trade has come under pressure in recent weeks.
Alphabet beat estimates on the top and bottom lines, but investors were wary of its aggressive capital expenditure plans in 2026 to fuel its AI ambitions.
The Google parent said it planned to spend $175 billion-$185 billion in capex this year, which is double what it spent last year.
While that level of spending adds risks for Alphabet, there is at least one big winner from the move: Nvidia (NVDA 1.33%), the dominant maker of data-center GPUs to run AI applications.
Image source: Getty Images.
Where the $175 billion is going
Alphabet management touted the return from investments it's already made in AI, and it plans to step up investing in AI compute to "support frontier model development by Google DeepMind," meaning cutting-edge AI that likely requires Nvidia hardware, in addition to improvements in core businesses like advertising.
Management also called out Nvidia as a key partner, and said it would be among the first to get access to Nvidia's new Vera Rubin GPU platform.
That's also a reminder that for all of the talk about big tech companies like Alphabet challenging Nvidia with its TPUs, the hyperscalers like Alphabet, Amazon, Microsoft, and Meta Platforms are still largely dependent on Nvidia hardware.
Alphabet also gave a full-throated defense of the AI boom, saying it had sold 8 million paid seats for Gemini Enterprise just four months after its launch, and it added, "Overall, we are seeing our AI investments and infrastructure drive revenue and growth across the board to meet customer demand and cap on the growing opportunities ahead of us."
NASDAQ: NVDA
Key Data Points
What it means for Nvidia
Last week, Meta Platforms announced plans to nearly double its capital expenditures this year, and now Alphabet is doing the same.
At a time when software stocks are plunging on fears of disruption from AI, which is bringing down chip stocks like Nvidia, these capital expenditures show that the AI boom is not only alive but accelerating, and it bodes well for continued growth for Nvidia.
The Wall Street consensus for Nvidia's fiscal 2027, which just began, is for Nvidia's revenue to jump 52%. Based on the capex forecasts from Alphabet and Meta, it wouldn't be a surprise to see the AI chip leader beat that.
