By Kenrick Cai and Deborah Mary Sophia
SAN FRANCISCO, Feb 4 (Reuters) – Alphabet is taking on OpenAI with a gusto that underscores Wall Street’s perception that the Google parent is the leader in AI, a turn of events from a year ago when investors thought it was badly lagging behind rivals and punished its stock.
Alphabet executives struck a more confident tone on the company’s post-earnings call on Wednesday, the first since it released the Gemini 3 model, which has wowed users and helped Google catch up in the artificial intelligence race.
Though it did not mention its chief AI rival by name, Alphabet’s newly confident messaging emphasized a key contrast: Investments in AI have begun to reap returns throughout the entire company. That served as Alphabet’s justification to potentially double its capital expenditures in 2026 – to between $175 billion and $185 billion – as a result of massive investments into AI computing capacity.
Alphabet’s prepared remarks about AI in 2025 had focused on product usage and AI revenues generated specifically via its cloud-computing unit.
“Overall, we’re seeing our AI investments and infrastructure drive revenue and growth across the board,” CEO Sundar Pichai said.
Google’s fresh conviction about AI-fueled revenue is backed by growth in both its consumer and enterprise businesses.
Pichai said the Google Gemini app, which competes with OpenAI’s ChatGPT, exceeded 750 million monthly active users at the end of the December quarter, up from 650 million at the end of the prior period. That still trails ChatGPT, which OpenAI CEO Sam Altman said in October had eclipsed 800 million weekly active users.
“We are also seeing significantly higher engagement per user, especially since the launch of Gemini 3,” Pichai said.
Gemini 3 has also been integrated into “AI Mode” in Google’s search engine and powers Google’s enterprise version of Gemini, which Pichai said on the call had reached 8 million paying licenses.
Google’s surging capex forecast initially alarmed investors, sending the stock down by as much as 6% in after-hours trading. But a strong showing from its cloud unit – revenue was up 48% in the December quarter – and an AI-powered boost across the rest of its business quickly reinforced Wall Street’s confidence that Google’s AI bets are beginning to pay off.
The stock recouped the first post-market shock to trade flat after hours, further validating Wall Street’s current message to tech companies: Soaring AI spending can continue only if tech companies demonstrate commensurate financial returns.
TURNING TIDE
Since the start of last year, Alphabet has gone from laggard to leader among the “Magnificent Seven” megacap companies and is now matched by only Nvidia and Apple among companies with market capitalizations of more than $4 trillion.
Despite taking a comparably modest tone on capital spending for the year, Microsoft’s shares took a massive beating last week, due in part to heightened concerns about its reliance on OpenAI. The company said its fiscal third-quarter spending would decrease from the record $37.5 billion it shelled out in the October-to-December period.
With OpenAI striking a string of multi-billion-dollar deals despite still losing money, investors have grown concerned about the company’s ability to finance those commitments, souring sentiment around major tech firms with which it has close links.
Paul Meeks, head of tech research at Freedom Capital Markets, said Alphabet was benefiting from a contrast in sentiment, despite a capex forecast that was “eye-watering.”
“I do think there’s a narrative emerging here where the market is favoring Google versus OpenAI,” Meeks said. “This time last year, every announcement by OpenAI to do business with somebody was applauded. But then in late 2025, now people are saying, ‘Oh my god, too much of my revenue backlog or AI infra spending is coming from OpenAI.'”
Shares of Oracle, whose contract backlog of more than $500 billion hinges largely on OpenAI, are down about 49% since the start of October. Microsoft, which holds a 27% stake in OpenAI and counts it as a massive customer, has slid more than 20% over the same period.
Meanwhile, Alphabet has jumped about 36%.
“The deals that OpenAI has with Microsoft and Oracle are highly tied to their ability to raise future funds,” said Dan Morgan, portfolio manager at Synovus Trust. “I think that is why you are seeing the street favor Alphabet.”
Alphabet’s deep war chest has been filled by major deals that it has struck in recent months to power products and infrastructure at tech firms Meta and Apple.
“If you are software and you are connected to OpenAI, you’re doubly not intriguing to people. Right now, Google has the hot hand,” said Eric Clark, portfolio manager of the LOGO ETF.
(Reporting by Deborah Sophia in Bengaluru and Kenrick Cai in San Francisco; Editing by Sayantani Ghosh and Thomas Derpinghaus)
Comments