Alphabet presented a markedly different tone to investors on its first post-earnings call since the rollout of its Gemini 3 model, signaling that its investments in artificial intelligence are beginning to translate into company-wide revenue gains. Executives used the call to argue that recent AI advances are driving stronger product engagement and commercial uptake, supporting a plan to substantially scale capital spending the company said could nearly double in 2026.
CEO Sundar Pichai emphasized that Alphabet is seeing returns from its AI infrastructure across multiple business lines. In prepared remarks he said the combination of AI investments and infrastructure is contributing to growth throughout the company. The comments formed the core rationale for a potential capital expenditure increase to a range between $175 billion and $185 billion in 2026, an uptick the company tied directly to heavy investment in AI computing capacity.
Alphabet’s confidence rests on several data points disclosed during the call. The Google Gemini app - positioned as a rival to OpenAI’s ChatGPT - surpassed 750 million monthly active users at the end of the December quarter, up from 650 million at the end of the prior period. Pichai also reported higher engagement per user since the introduction of Gemini 3 and noted that the model has been embedded into Google’s search experience via an 'AI Mode' as well as powering the enterprise version of Gemini, which he said had reached 8 million paying licenses.
By contrast, OpenAI’s ChatGPT was referenced indirectly when Pichai noted the user metrics, and the company’s chief competitor has previously reported a larger weekly active user base. On the call, Alphabet did not name its rival directly, but the comparison was implicit in the discussion of usage metrics and enterprise demand.
Investors reacted to the company’s newly aggressive capex outlook with initial caution. Alphabet’s stock fell by as much as 6% in after-hours trading following the announcement of a possible near-doubling of capital spending. That move was short-lived; the market response stabilized once stronger operating metrics were highlighted, notably a 48% increase in cloud revenue in the December quarter. The subsequent snapback to roughly flat price movement after the initial drop suggested that market participants were reassured by evidence that large AI outlays could be tied to tangible revenue growth.
Analysts and portfolio managers cited a shifting market narrative. Since the start of last year, Alphabet has moved from being perceived as a laggard on AI to being seen as a leader among the so-called 'Magnificent Seven' megacap companies. The company is now, according to the call, matched only by Nvidia and Apple among firms with market capitalizations above $4 trillion.
That emerging leadership perception benefited from heightened investor scrutiny around companies closely tied to OpenAI. Several major technology firms have significant commercial relationships with the AI maker, and concerns surfaced around OpenAI’s own ability to finance its multi-billion-dollar deals. Market participants said that worry has been weighing on the shares of companies with close OpenAI exposure.
Examples cited on the call and by market observers included Microsoft and Oracle. Microsoft disclosed that its fiscal third-quarter spending would fall from a record $37.5 billion expended in the October-to-December period, and the firm’s shares have declined by more than 20% over a recent interval. Oracle, which the call characterized as having a contract backlog of more than $500 billion significantly tied to OpenAI, has seen its shares drop about 49% since the start of October. Over the same period, Alphabet’s shares rose roughly 36%.
Portfolio managers framed the divergence as a reflection of perceived financing risk at OpenAI and the resulting implications for firms dependent on that relationship. Dan Morgan, a portfolio manager cited on the call, said the financing outlook for OpenAI-backed projects was a factor in how the market has been allocating preference. Paul Meeks, head of tech research at Freedom Capital Markets, suggested the market is now favoring Google over OpenAI-linked counterparts despite describing Alphabet’s capex forecast as 'eye-watering,' pointing to a narrative shift from the prior year.
Executives also highlighted recent commercial wins underpinning Alphabet’s cash position. The company has reportedly secured major partnerships to provide AI infrastructure and products for other large technology firms, and that momentum formed part of the backdrop for management’s optimism about the returns on its AI investments.
Market observers cautioned that investor confidence remains contingent on proof that expanded AI spending converts into sustainable revenue gains. The episode following the earnings call reinforced the prevailing message from Wall Street - that elevated investment in AI will be tolerated if and only if it produces commensurate financial results across businesses.
As companies reassess their own AI strategies and capital allocations, the market is now parsing the relative risks and returns of ties to different AI providers. Several investors quoted on the call said firms closely connected to OpenAI are viewed as more exposed to uncertainties around that company’s funding and commercial scalability, while Alphabet is benefiting from a clearer line of sight on monetization tied to its own AI products and cloud services.
In sum, Alphabet used its latest earnings forum to make the case that substantial AI outlays are delivering visible returns, allowing the company to justify materially higher capital commitments to build AI compute capacity. That argument helped to steady investor sentiment after an initial selloff and to reframe Alphabet’s position in the market as the industry evaluates which large technology companies will emerge as durable leaders in the next phase of AI-driven investment.
Key points
- Alphabet says AI investments are beginning to drive revenue across consumer and enterprise units, supporting a potential capex increase to $175 billion-$185 billion in 2026 - sector impact: technology, cloud infrastructure.
- Gemini 3 adoption is linked with rising engagement; the Gemini app reached 750 million monthly active users and enterprise Gemini has 8 million paying licenses - sector impact: cloud services, enterprise software.
- Strong cloud growth - 48% revenue increase in the December quarter - helped calm investor concerns after the capex announcement - sector impact: cloud providers, data center suppliers.
Risks and uncertainties
- Alphabet’s planned surge in capital expenditure is large and could unsettle investors unless it continues to produce clear revenue gains - market impact: equity valuations in large-cap tech.
- Firms with close ties to OpenAI face financing and revenue-backlog risks if OpenAI cannot fund its multi-billion-dollar deals, which may pressure their stock performance - market impact: software vendors, cloud partners.
- Near-term investor sentiment remains sensitive to evidence that AI-driven spending translates into sustained monetization across businesses - sector impact: cloud infrastructure and enterprise AI services.