Google's $185B AI Bet: Why Wall Street Is Nervous About the Biggest Capex Ever

$185 billion. That's how much Google parent Alphabet plans to spend in 2026 on AI infrastructure—more than double what it spent in 2025. Despite beating Wall Street expectations on revenue and earnings, the stock dropped in after-hours trading Wednesday. Investors weren't celebrating the strong quarter; they were calculating the cost of Google's AI ambitions.

The spending announcement resets expectations for how much tech giants are willing to pour into the AI race. And it's testing Wall Street's patience with what some see as an unsustainable arms race.

Outspending Everyone Else

Alphabet's 2026 capex forecast dwarfs its competitors. Meta expects to spend between $115-135 billion in 2026, while Microsoft offered no specific forecast, saying only that spending will "decrease on a sequential basis" this quarter. Amazon reports Thursday, but analysts expect around $146.6 billion for 2026.

The money will fund AI compute capacity for Google DeepMind, meet "significant cloud customer demand," and support strategic investments in other ventures, CFO Anat Ashkenazi explained. About 60% will go to servers, with the remaining 40% split between data centers and networking equipment.

The investment is paying off in demand. Google's cloud backlog surged 55% sequentially and more than doubled year-over-year to reach $240 billion by Q4's end. Cloud revenue jumped nearly 48% compared to last year.

"Compute Capacity" Keeps CEO Awake

When asked what keeps him up at night, CEO Sundar Pichai didn't hesitate: "compute capacity." The challenge isn't just building more servers—it's navigating power constraints, land availability, and supply chain bottlenecks while scaling to meet "extraordinary demand."

Amin Vahdat, Google's AI infrastructure chief, told employees the company must double its serving capacity every six months to keep up with AI service demand. "The competition in AI infrastructure is the most critical and also the most expensive part of the AI race," he said.

That urgency explains December's $4.75 billion acquisition of data center company Intersect. Google isn't just buying capacity—it's buying time in a race where falling behind could mean losing the AI war entirely.

The Software Sector's $185 Billion Question

Wall Street's nervous reaction reflects broader concerns about AI spending. The software sector has lost 30% of its value over the past three months, driven by fears that AI tools will disrupt existing software businesses and make current investments obsolete.

Alphabet had largely avoided major stock volatility, especially after being one of 2025's top performers. But Wednesday's reaction shows even Google isn't immune to investor skepticism about AI spending levels.

The company's Gemini AI now boasts 750 million monthly active users, up from 650 million last quarter. The partnership with Apple to power Siri represents a major validation. Yet investors are asking: when does spending growth start translating to profit growth?

The Infrastructure Arms Race

Google's massive capex commitment signals that the AI infrastructure race is far from over. While competitors like Microsoft hint at moderating spending, Google is doubling down. The bet is that controlling AI infrastructure will determine who wins the next decade of computing.

But there's a flip side. If demand doesn't materialize as expected, or if AI capabilities plateau, these investments could become stranded assets. The companies spending the most today are either positioning themselves for dominance—or setting themselves up for spectacular write-downs.