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alphabet (Goog 0.01%)) (googl 0.14%)) It provided a fourth quarter update for 2024 after the market closed on Tuesday. And Google’s parents gave Nvidia great news (NVDA) 3.08%)) Investors were worried about the impact of Chinese artificial intelligence (AI) company Deepseek.
Nvidia silver lining with Google’s disappointing Q4 growth
Unfortunately, the Alphabet news wasn’t that good for its own investors. Tech Giant shares sank about 8% in early trading on Wednesday after Q4 updates on Tuesday evening.
At first glance, the alphabet numbers don’t seem to be bad at all. Revenues rose 12% year-on-year to $96.47 billion. Net income rose 38% and earnings per share rose 31% to $2.15. Google Cloud Revenue rose 30% to $12 billion.
What was the problem with those outcomes? Analysts surveyed by LSEG expected a high fourth quarter revenue of $965.6 billion. Google Cloud is the main culprit and has achieved lower revenue growth than expected. Additionally, Alphabet projected capital expenditures of $18 billion from $16 billion in the first quarter of 2025.
However, there is Nvidia’s silver lining with Google Cloud’s disappointing Q4 growth. Alphabet CEO Sundar Pichai said cloud revenues are “corresponding to the timing of new capacity deployments.” CFO ANAT Ashkenazi has confirmed that there will continue to be greater demand for cloud services than available capacity driven by demand for AI products. In other words, Google Cloud could have made more revenue in the fourth quarter with more capacity.
Ashkenazi said, “(w)e is in a tough demand and is working very hard to bring more capacity online.” That’s a standard quarterly capital expenditure than Alphabet expects. That’s the reason behind it. The company plans to spend more on building technology infrastructure, particularly servers, data centers and networking.
All this has to be music for Nvidia’s ears. Google has its own AI chip, but it relies heavily on Nvidia’s GPU. In the fourth quarter revenue call, Pichai highlighted his company’s “strong relationship with Nvidia.” He pointed out that Google was the first to announce its customers using Nvidia’s new Blackwell platform. Google needs the ability to handle AI demand. Nvidia will almost certainly benefit.
deepseek, shmeepseek?
The market response to the launch of Deepseek’s R1 Reasoning model seems to indicate that Nvidia’s best day is behind it. Many investors panic for fear that the cost-effective technology of Chinese AI companies could shake the world of AI and significantly reduce the demand for NVIDIA GPUs.
However, when asked about the impact of Deepshek in the fourth quarter revenue call, Pichai was not worried. He first praised the work the Deepseek team did. However, he was not surprised at the company’s progress. Pichai argued that the Google Gemini 2.0 Flash and 2.0 Flash Thinking models are “some of the most efficient models, such as comparing them to Deepseek’s V3 and R1.”
What are the important points? Nvidia’s biggest customer CEOs do not view Deepseek as a major threat. And this large customer needs more capacity (and therefore more NVIDIA GPUs), despite having what it considers to be the most efficient AI model. That’s welcome news for investors who are concerned about Deepseek’s challenge to Nvidia.
Pichai also said, “There is an increase in the proportion of spending towards reasoning compared to
The future is still bright for both companies
I think Alphabet and Nvidia are similar in several ways. In my view, both stocks are overwhelmed by temporary concerns. Alphabet revenue growth should recover as it increases cloud capacity. I also think that the fear of a destructive threat to Nvidia from Deepseek will also fade over time. The future is still bright for both companies.
Suzanne Frey, an executive at Alphabet, is a member of the board of directors of Motley Fool. Keith Speights has the Alphabet position. We recommend Alphabet and Nvidia for Motley Fool. Motley Fools have a disclosure policy.
