Why Google is ramping up AI investment to as much as $185 billion

Strong profits and cash flow are driving Google's plan to double AI spending to $185 bn; the money will go into AI models, cloud infrastructure and data centres as demand continues to rise

Google is preparing for one of its biggest investment years ever as it sharply raises spending to support artificial intelligence, cloud computing and data centres. Strong growth in advertising and cloud revenues has given the tech giant confidence to step up capital expenditure, even as investors worry that AI investments may be running ahead of returns, the Financial Times reported. 

Alphabet, Google’s parent company, said on Wednesday that it expects capital expenditure to rise steeply in the coming year, underlining how central AI has become to its long-term strategy.

Why is Google’s capex forecast far above expectations?

Google said it now expects capital spending in 2026 to be between $175 billion and $185 billion, nearly double last year’s levels and well above analyst estimates of around $120 billion. The company also signalled that heavy investment would continue as it builds out AI infrastructure across its businesses, the report said. 

 

Spending has already accelerated. Capital investment in the fourth quarter almost doubled from a year earlier to $27.9 billion. Total capital expenditure for 2025 reached $91.4 billion. 

The company said much of the additional spending will go towards data centres, custom-built AI chips and cloud infrastructure needed to meet rising demand for AI services.  ALSO READ | Google's quarterly results show internet giant getting stronger in AI age

How is AI momentum shaping Google’s strategy?

Google has regained ground in the AI race in recent months after launching new versions of its Gemini models. It has relied on strong cash flows and its in-house tensor processing units to compete more aggressively with rivals such as OpenAI. 

Chief Executive Officer Sundar Pichai said the company’s financial strength allows it to invest heavily without hurting its core businesses. He said demand for Google’s products is growing across the board. 

According to Pichai, the scale of investment reflects long-term demand rather than short-term trends. He added that the need for computing power at Google DeepMind and in the cloud business remains extremely strong, with customer demand rising faster than new capacity can be added.

Why are investors worried about AI spending?

Despite the strong results, Google shares initially fell more than 7 per cent in after-hours trading after the capex numbers were released. The stock later recovered some ground but was still down about 1.5 per cent, the report said. 

Investors have grown cautious about AI spending across the technology sector, concerned that companies are investing faster than revenues are growing. Similar worries hit Microsoft shares last week after it projected capital spending of more than $140 billion this year. In contrast, Meta’s shares rose after it showed that AI was directly improving advertising performance.  ALSO READ | Google rolls out Project Genie: What is it, how it works, and availability

How is Google’s core advertising business holding up?

Google’s net profit rose 30 per cent year-on-year to $34.5 billion in the fourth quarter, beating analyst expectations of $31.9 billion. Alphabet’s total profit for 2025 stood at $132 billion. 

The company’s core search and advertising business continued to grow strongly, easing fears that AI chatbots are pulling users away. Revenue from search and ads rose 17 per cent to $63.1 billion in the quarter, exceeding market expectations. 

Chief Business Officer Philipp Schindler said AI has improved Google’s ability to understand user intent, allowing it to place ads on longer and more complex searches that advertisers are willing to pay more for, the report said.

What do cash flows and user numbers show?

Free cash flow rose to $24.5 billion in the quarter and totalled $73.3 billion for the year, reinforcing confidence in Google’s ability to fund its AI plans. 

Alphabet shares are up 61 per cent over the past year, taking its market value past $4 trillion and making it the world’s third-largest company. 

Pichai also highlighted growth in the Gemini app, which now has 750 million monthly users, though it still trails OpenAI’s ChatGPT, which claims more than 850 million weekly users.