A member of the Magnificent 7 club posting sales below expectations is rare enough to merit a mention. Despite year-on-year growth of 12%, Alphabet's fourth-quarter sales ($96.5 billion) fell short of analysts' consensus.

Cloud growth was a particular disappointment. With almost 12 billion dollars in revenues, Google Cloud posted growth of 30% in the fourth quarter, down from 35% in the previous quarter. However, the division's operating profit doubled to $2.1 billion.

On the other hand, advertising sales, which account for three quarters of total sales, remain solid. Over the October-December period, they rose by 10.6% to $72.46 billion. Alphabet benefited in particular from record spending on the US presidential election.

In recent years, Youtube in particular has contributed to growth in advertising revenues. And the momentum is still good. The platform's revenues were $10.47 billion in the fourth quarter, up 13.8% from 12.2% in the previous quarter. Like Spotify, which generated a profit for the first time since 2008, or Netflix and its 300 million subscribers, the major platforms that have succeeded in dominating their markets are now reaping the rewards.

Finally, earnings grew much faster than sales. Operating income rose by 33% in 2024. Margins have therefore risen significantly. Net margin rose from 24% in 2023 to 28.6% in 2024, putting Alphabet on a par with Hermès, Europe's benchmark for profitability.

Capex wall

The other element that scared investors was the amount of Capex, which Alphabet CEO Sundar Pichai estimated at $75 billion in 2025. A figure 30% higher than Wall Street's expectations, which should enable Alphabet to accelerate the deployment of AI infrastructures. However, since the appearance of Deepseek, the idea that more and more investment is needed to win the AI race has taken a turn for the worse, and the question of the profitability of these investments is becoming central.

At Alphabet, as at its competitors, it's not just the absolute amounts that are accelerating. To give an idea, Alphabet's Capex represented around 10% of sales over the period 2021-2023, compared with 15% expected over the period 2024-2026.

A demanding market

Alphabet's results and the market's reaction are quite similar to Microsoft's publication. For both companies, investor attention is focused on cloud growth. Let's not forget that Microsoft (with its Azure platform) is number two in this market and Google number three; both are outpaced by leader Amazon (AWS). And Microsoft also posted growth slightly below expectations, at a "mere 31%".

Although these figures are impressive in absolute terms for companies worth between $2,500 and $3,000 billion, the market focused on the deceleration in growth. Indeed, in the stock market, we always look at the second derivative, i.e. we don't just look at whether growth is positive or negative, but at the acceleration or deceleration of the growth rate.

And as growth decelerates, the gap in earnings growth between the Mag 7 and the other 493 stocks in the S&P500 narrows, giving grist to the mill of the proponents of the "growth" theme. This gives grist to the mill of proponents of the "broadening" theme, i.e. the idea of widening the equity rally, essentially driven by the magnificent 7 over the past two years.

Meanwhile, Alphabet's valuation has returned to much more attractive levels, below the 10-year average, and quite close to that of the S&P500. The market is perhaps taking a wait-and-see attitude, as the American courts are due to rule this year on a possible break-up. Alphabet was found guilty last summer of illegal practices to establish and maintain its monopoly in online search, and the US government has asked the courts to divest its Chrome web browser. It's not the only major US tech company to face antitrust proceedings. This no doubt partly explains the recent rapprochement between tech CEOs and the Trump administration.