Google turns AI struggles into industry dominance in just one year

Google’s parent company is now winning praise from Wall Street for its artificial intelligence efforts, a major change from just one year ago when investors worried the tech giant was falling behind its competitors.

Alphabet executives showed fresh confidence during their earnings call on Wednesday, held after the company launched Gemini 3, a new AI model that has impressed users and helped Google close the gap in the race to develop artificial intelligence technology.

Without naming OpenAI directly, company leaders highlighted an important difference between the two firms: their AI spending has started producing financial gains throughout the entire business.

Gemini app reaches 750 million monthly users

This reasoning helped Alphabet defend plans to potentially increase capital spending to as much as $175 billion to $185 billion in 2026. That amount would be roughly double what the company has spent before, driven mainly by huge investments in computing systems needed to run AI programs.

In previous earnings discussions about AI during 2025, Alphabet had talked mostly about product usage numbers and money earned through its cloud computing division. “Overall, we’re seeing our AI investments and infrastructure drive revenue and growth across the board,” CEO Sundar Pichai told investors on the call. The company’s renewed confidence about making money from AI comes from gains in both consumer products and business services.

Pichai revealed that the Google Gemini app, which goes head-to-head with OpenAI’s ChatGPT, had more than 750 million people using it each month by the end of the December quarter. That number was up from 650 million users at the end of the previous three-month period.

However, ChatGPT still has more users. OpenAI CEO Sam Altman said in October that ChatGPT had passed 800 million people using it each week. “We are also seeing significantly higher engagement per user, especially since the launch of Gemini 3,” Pichai added.

Google has built Gemini 3 into “AI Mode” in its search engine and uses the technology to run the business version of Gemini. Pichai said during the call that this enterprise product now has 8 million paying customers.

Stock rebounds as cloud revenue surges

The massive spending forecast initially worried investors, causing the stock price to drop as much as 6% in trading after regular market hours. But strong results from the cloud division, which saw revenue jump 48% in the December quarter, and AI-driven improvements across other parts of the business quickly restored Wall Street’s faith that Google’s AI bets are starting to work.

Google Cloud growth crushes Wall Street estimates. Source: Company Statements – Deborah Sophia – Reuters.

The stock recovered from the initial drop and ended after-hours trading unchanged, supporting a message Wall Street has been sending to technology companies: big AI spending can only continue if companies show they’re making real money from it. Over the past year, Alphabet has moved from the back of the pack to the front among the “Magnificent Seven” group of large technology companies.

The company now joins only Nvidia and Apple as firms worth more than $4 trillion. Meanwhile, Microsoft’s stock took a major hit last week, partly because of growing worries about how much the company depends on OpenAI.

Despite speaking more cautiously about spending for the year ahead, Microsoft said its spending in the fiscal third quarter would decrease from the record $37.5 billion it spent during the October through December period. Financial experts pointed out that this difference in how the market responded shows changing investor attitudes.

People who buy stocks now prefer companies that have built their own AI systems rather than those relying on outside partners. While Microsoft deals with its complicated relationship with OpenAI, Alphabet’s unified strategy across search, cloud services, and consumer products gives a clearer picture of how the company will make money over time.

The company’s ability to use its large existing customer base to roll out Gemini 3 also suggests it has an edge in bringing new technologies to market quickly. As the industry enters the next stage of AI development, Alphabet seems ready to keep moving forward through solid execution and smart use of resources.

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