Alphabet, the parent company of Google, is significantly increasing its investment in artificial intelligence (AI) and data center infrastructure, with capital expenditures projected to reach between $175 billion and $185 billion through 2026. This represents roughly double the spending in 2025, signaling an aggressive push to expand computing capacity for its own products and to support a growing number of AI partners.
The investment is primarily focused on bolstering technical infrastructure, with a large portion allocated to AI development and the construction of power-hungry data centers. Alphabet anticipates that approximately 40% of the spending will go towards data center construction and networking equipment, while the remaining 60% will be directed towards data servers. This allocation mirrors the spending proportions observed in 2025.
Chief Financial Officer of Alphabet, Anat Ashkenazi, indicated that a substantial portion of the server investment will be dedicated to AI infrastructure, including Google's own tensor processing units and graphics processors from Nvidia. The new computing capacity will be divided evenly between internal use and Google Cloud, which also supports external customers. This expansion highlights the increasing importance of AI to Alphabet's overall strategy.
The surge in investment reflects the company's optimism regarding AI development and adoption across the wider economy. Alphabet CEO Sundar Pichai acknowledged the challenges of scaling compute while navigating power availability, land constraints, and supply chain pressures. He also noted that Alphabet's service backlog grew significantly due to high demand for AI products.
Alphabet's infrastructure investments will support not only Google's own services but also the AI workloads of major partners, including Apple, OpenAI, and Anthropic, which rely on Google Cloud. This strategic move positions Alphabet as a key player in enabling AI development and deployment for other leading technology companies.
The increased capital expenditure is expected to have a positive impact on the US steel industry, which has become increasingly reliant on data center construction and related infrastructure as key drivers of steel demand. While other consumer-facing industries face challenges, steel mills and major converters view data center construction as a source of growth.
Despite the positive outlook, investors reacted negatively to the capital expenditure forecast, with Alphabet's stock dipping in extended trading. Wall Street remains sensitive to AI spending, even as Google demonstrates impressive artificial growth and competes with companies like OpenAI. However, the strong performance of Google's ad business has helped to alleviate concerns about potential revenue erosion from competitors in the AI industry. Google Search ad revenue increased by 17% year-over-year, surpassing analysts' expectations. Additionally, Google Cloud revenue grew by 48% in the fourth quarter, exceeding analysts' estimates.
Alphabet's significant investment in AI and data centers underscores its commitment to leading the AI revolution and meeting the growing demand for cloud services. While the increased spending has raised some concerns among investors, the company's strong financial performance and strategic positioning in the AI market suggest a promising future.
