Alphabet’s recent earnings report comes amid scrutiny on AI investments and a tech stock sell-off. The company exceeded revenue expectations with Q4 revenues at $97.23 billion, surpassing analyst predictions of $95.16 billion. Earnings per share were also higher than anticipated at $2.82 against the forecast $2.65. Alphabet maintained a gross profit margin of 59.8%.
The company’s capital expenditure, primarily on AI, reached $27.85 billion last quarter, totaling over $91 billion for 2025. A notable feature of the report is the ambitious capex forecast for 2026, ranging from $175 billion to $185 billion, well above the analyst forecast of $119.5 billion. How the market responds to these projections may influence the broader tech and AI market trends.
Tech Stocks and Alphabet’s Market Performance
The Nasdaq fell 1.5% amid declines in tech stocks, while Alphabet’s shares dipped approximately 1.5% post-market. Alphabet’s robust fundamentals have shown through in advertising and cloud revenue, which exceeded expectations. Google’s advertising revenue reached $82 billion, and cloud revenue was $17.66 billion. Despite these positives, Google’s AI capex spending leaves it vulnerable to ongoing tech sell-offs, yet its diverse business model may mitigate potential losses.
We have seen Alphabet’s Q4 2025 earnings report, which showed a strong beat on revenue and profits driven by its advertising and cloud segments. The market, however, is focused on the forward guidance for 2026 capital expenditure, which is projected to be as high as $185 billion. This has created significant uncertainty, causing the Nasdaq Volatility Index (VXN) to rise over 5% this week as traders brace for turbulence.
The enormous spending plan makes the stock vulnerable to a sell-off in the near term, as it draws parallels to past market punishments for heavy spending. We saw how Meta’s stock fell sharply through 2022 after it announced its major metaverse investments, as investors fled due to concerns over profitability. Traders anticipating a similar negative reaction could consider buying put options to profit from a potential downturn in the coming weeks.
Strategic Opportunities Amid Market Volatility
Conversely, the sell-off could be a classic overreaction, presenting a chance for bullish traders. Alphabet’s core advertising business remains incredibly profitable, and with recent data showing consumer spending on services grew 3.2% in the last quarter of 2025, the ad market remains robust. Selling cash-secured puts at a strike price below the current market level could be an effective strategy to collect premium from the heightened fear.
Given the tug-of-war between stellar current fundamentals and massive future spending, implied volatility on Alphabet options is elevated. This environment suggests a large price swing is more likely than not, but the direction is unclear. For those who believe a big move is coming, purchasing a straddle using the March or April expirations could be a way to capitalize on a significant price move, regardless of whether it is up or down.
