Alphabet’s ambitious commitment to OpenAI underscores Wall Street’s perception that Google’s parent company is a leader in AI, a change from a year ago when investors punished the company’s stock because they thought it was lagging far behind rivals.
That was evident in the confident tone of executives during Alphabet’s first post-earnings conference call since the company released its Gemini 3 model.
But shares fell 3% Wednesday after the company announced it would spend up to $185 billion this year. Investors will be watching more closely as spending could more than double from 2025, potentially outpacing rivals Microsoft, Meta and Amazon.
“Given both capital expenditures and associated resource demands, total investment across mega-cap stocks in 2026 will quickly reach $trillion,” Bernstein analyst Mark Schmulik said.
“To recoup these trillions of yen, this suggests that the total addressable market for AI-driven products and enhancements will need to be a multiple of that soon.”
So far, the AI spending is paying off, with the company’s stock still up more than 80% over the past 12 months, despite Thursday’s drop.
Alphabet’s prepared comments on AI in 2025 focused specifically on product usage and AI revenue generated through its cloud computing division.
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Cloud unit revenue rose 48% in the December quarter. This comes after Wall Street sent a stark message to tech companies: “High AI spending can only continue if tech companies show commensurate financial returns.”
“Overall, we believe our AI investments and infrastructure are driving revenue and growth across the board,” CEO Sundar Pichai said.
Google’s belief in AI revenue is supported by growth in both its consumer and enterprise businesses.
Pichai said the Google Gemini app, which competes with OpenAI’s ChatGPT, had more than 750 million monthly active users at the end of the December quarter, up from 650 million in the previous quarter.
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This number still falls short of ChatGPT, which OpenAI CEO Sam Altman said surpassed 800 million weekly active users in October.
“Especially since the launch of Gemini 3, we have also seen a significant increase in engagement per user,” Pichai said.
Gemini 3 is also integrated into Google’s search engine’s “AI mode” and powers Google’s enterprise version of Gemini, which Pichai said has reached 8 million paid licenses.
the tide is changing
Since early last year, Alphabet has gone from being a laggard to a leader among the so-called Magnificent Seven, a group now rivaled only by Nvidia and Apple among companies with market capitalizations of more than $4 trillion.
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Despite a relatively modest tone in capital spending this year, Microsoft’s stock price fell sharply last week, in part due to growing concerns about its reliance on OpenAI. The company said its fiscal third-quarter spending would fall from a record $37.5 billion in the October-December period.
As OpenAI continues to ink losses and continues to close multibillion-dollar deals, investors are concerned about whether the company will be able to fund these commitments, and sentiment toward the big tech companies that have close ties to OpenAI has soured.
Paul Meeks, head of technology research at Freedom Capital Markets, said Alphabet is benefiting from the contrast in sentiment despite the “eye-popping” capital spending forecast.
“I think there’s a narrative emerging here that the market favors Google over OpenAI,” Meeks said. “This time last year, every OpenAI announcement about doing business with someone was being praised. But now, in late 2025, people are saying, ‘Oh my gosh, so much of my accrued revenue and AI infrastructure spending is coming from OpenAI.'”
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Shares of Oracle, whose more than $500 billion in outstanding contracts rely primarily on OpenAI, have fallen about 49% since the beginning of October. Microsoft, which owns a 27% stake in OpenAI and counts the company as a large customer, has fallen more than 20% over the same period.
Meanwhile, Alphabet rose about 36%.
“The deals that OpenAI has with Microsoft and Oracle are very tied to its ability to raise money in the future,” said Dan Morgan, portfolio manager at Synovus Trust. “I think that’s why Alphabet has such a following on the street.”
Alphabet’s deep war chest is filled with big deals it has signed in recent months to beef up the products and infrastructure of tech companies Meta and Apple.
“If you’re software and you’re connected to OpenAI, it’s doubly uninteresting to people. Google has a strong hand at the moment,” said Eric Clark, portfolio manager at LOGO ETF.
