Alphabet just posted record earnings and announced a capex plan that dwarfs most countries’ GDP — and here’s what it means for investors, rivals and the future of artificial intelligence

Quick Answer: How much is Google spending on AI in 2026? Alphabet expects to spend between $175 billion and $185 billion in capital expenditure in 2026, nearly doubling the $91.4 billion spent in 2025 and far exceeding Wall Street’s forecast of $119.5 billion. The spending will go toward data centres, custom AI chips and cloud infrastructure to power Google’s Gemini models and meet surging demand for AI services.

The Number That Stunned Wall Street

Alphabet just delivered a masterclass in how to beat earnings expectations and terrify investors at the same time.

The Google parent company reported fourth-quarter revenue of $113.8 billion, up 18% year-on-year, comfortably ahead of Wall Street’s $111.4 billion estimate. Earnings per share came in at $2.82 versus the $2.63 analysts expected. Net income surged 30% to $34.5 billion. Annual revenue crossed $400 billion for the first time in the company’s history.

By any measure, these are exceptional results for a company worth $4 trillion.

Then came the number that hijacked the entire conversation.

Alphabet told investors it expects capital expenditure of $175 billion to $185 billion in 2026. At the midpoint, that is $180 billion — roughly 50% more than Wall Street had modelled and nearly double the $91.4 billion spent in 2025.

To put that in perspective, Alphabet’s planned spending on AI infrastructure this year is larger than the GDP of most European countries. It represents nearly half of the company’s total 2025 revenue. Just three years ago, annual capex was $30 billion.

The stock initially fell 6% in after-hours trading. Then it recovered. Then it dipped. Then it rose 3%. Nobody quite knew what to do with a number that large.

Where the Money Is Going

Alphabet’s CFO Anat Ashkenazi told analysts that the spending would fund three priorities.

First, AI compute capacity for Google DeepMind, the company’s artificial intelligence research lab, which is building the next generation of Gemini frontier models. Training these models requires massive clusters of specialised chips and unprecedented amounts of energy.

Second, Google Cloud infrastructure to meet what Ashkenazi described as “significant customer demand.” Cloud backlog increased 55% sequentially in the quarter and more than doubled year-on-year, reaching $240 billion by the end of the fourth quarter. Customers are signing long-term contracts for AI computing services, and Google needs the physical infrastructure to deliver on those commitments.

Third, improvements to Google Services — the search and advertising business that still generates the vast majority of Alphabet’s revenue. AI is transforming how users interact with search, and Google is investing to ensure it maintains dominance as the interface evolves.

Much of the spending will go toward data centres and Google’s custom-designed tensor processing unit chips, manufactured in partnership with Broadcom. Broadcom shares rallied 6% on the news, as analysts quickly calculated the implications for Google’s chip supply chain.

The AI Arms Race in Numbers

Google’s spending plan makes sense only in the context of what its rivals are doing.

Meta announced last week that it will spend between $115 billion and $135 billion on AI infrastructure in 2026. Microsoft is on pace for roughly $150 billion in annual capex based on its most recent quarterly run rate. Amazon’s AWS division continues to build aggressively across dozens of new data centre regions.

Together, the four largest hyperscalers are expected to spend somewhere north of $500 billion on AI infrastructure this year alone. That is more than the annual military budget of any country on Earth except the United States.

The spending is being driven by a simple reality: demand for AI compute is growing faster than supply. Sundar Pichai told analysts he expects Google to remain “supply constrained” throughout 2026, meaning the company cannot build data centres fast enough to meet customer demand.

This is the core tension in the AI investment thesis. The demand is real — cloud customers are signing enormous contracts, Gemini has 750 million monthly active users, and AI-powered search is generating more advertising revenue than traditional search. But the capex required to service that demand is consuming cash flows at an alarming rate.

Alphabet’s free cash flow actually slipped in the fourth quarter to $24.6 billion despite operating cash flow rising 34% to $52.4 billion. The reason was simple: capex ate the difference. Over the past twelve months, free cash flow was essentially flat, growing less than 1%.

Search Is Not Dead

Perhaps the most significant signal buried in the results was the continued strength of Google’s search and advertising business.

Search advertising revenue rose 17% to $63.1 billion in the quarter, easily beating expectations. This matters because the biggest bear case against Google has been that AI chatbots like ChatGPT would steal users away from traditional search.

The data says the opposite is happening. AI is making search more valuable, not less. Pichai explained that AI-powered features are helping Google understand more complex queries, which in turn allows the company to serve more relevant — and more profitable — advertisements.

As one analyst put it, the AI prompts users input create more questions which lead to more searches, which in turn keeps advertising revenue growing. Rather than killing search, AI is feeding it.

Google Cloud revenue hit $17.66 billion for the quarter, reflecting surging enterprise demand for AI infrastructure and services. The cloud business has transformed from a money-losing operation into a significant profit centre, providing further justification for the massive infrastructure buildout.

What It Means for Investors

The market’s confused reaction to Alphabet’s results captures the central dilemma facing tech investors in 2026.

The bull case is straightforward. Revenue is accelerating. Margins are expanding. Cloud demand is exploding. AI is making the core search business stronger. Google has the cash, the technology and the data to compete with anyone.

The bear case is equally simple. Spending nearly half your revenue on capital expenditure is not sustainable. Free cash flow is stagnating. There is no guarantee that today’s AI investments will generate proportional returns. And at $4 trillion, Alphabet is priced for perfection.

Zacks Investment Research strategist Ethan Feller called the capex commitment “jarring.” RBC Capital Markets’ Brad Erickson countered that Google Cloud momentum and Gemini’s growth were “plenty good as proof points which warrant the higher spend.”

The truth is that nobody knows whether $185 billion in AI spending will look brilliant or reckless in three years’ time. What is clear is that Google is not hedging its bets. It is making the most expensive statement of intent in corporate history.

The Bigger Picture

Google’s spending plan matters far beyond its own share price.

When a $4 trillion company commits to doubling its infrastructure investment, the effects ripple across the entire technology ecosystem. Chip manufacturers, data centre operators, energy companies, cooling technology providers and construction firms all benefit directly.

It also raises the bar for competition. Smaller AI companies cannot match this level of investment. The gap between the hyperscalers and everyone else is widening with every quarterly earnings report, concentrating AI capability in fewer and fewer hands.

For Europe, the numbers are a stark reminder of the continent’s growing technology deficit. No European company — and few European governments — can match the annual capital expenditure of a single American technology firm.

Google is betting that AI infrastructure will be the most valuable asset class of the next decade. At $185 billion a year, it is putting its money where its mouth is.

Whether investors should follow is the $4 trillion question

The post Google Is About to Spend $185 Billion on AI — Here’s Why It Could Reshape the Entire Tech Industry appeared first on European Business & Finance Magazine.