^{Sundar Pichai, chief executive officer of Alphabet Inc., during the Bloomberg Tech conference in San Francisco, California, US, on Wednesday, June 4, 2025.}

^{David Paul Morris | Bloomberg | Getty Images}

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Alphabet Balances AI Ambition With New Risk Warnings

Alphabet is ramping up its artificial intelligence investments at an unprecedented pace, but the company is also becoming more explicit about the risks that come with that strategy. As it prepares to return to the debt market to help fund its AI build-out, the Google parent has added a new set of AI-related concerns to its latest annual financial filing.

In its report, Alphabet highlighted potential disruptions to its core advertising business, rising operational complexity, and the danger of overbuilding costly infrastructure that may not be fully utilized if demand shifts or slows.

The disclosures underscore the growing financial and strategic stakes as Big Tech races to dominate generative AI.

Advertising and Excess Capacity Now Listed as Risks

For the first time, Alphabet explicitly acknowledged that widespread adoption of generative AI could alter how users interact with the internet, potentially reducing reliance on traditional search and, by extension, search-driven advertising.

The company warned that changes in user behavior may force it to rethink ad formats, pricing, and delivery models. Alphabet cautioned that there is no guarantee it will adapt quickly or effectively enough to maintain its dominant position as advertisers and consumers shift toward AI-driven experiences.

At the same time, Alphabet raised concerns about excess capacity. To meet soaring demand for AI training and inference, the company is committing to large-scale data center expansion, long-term equipment purchases, and substantial leasing agreements with third-party operators.

Management noted that these long-duration commercial contracts could increase costs, operational complexity, and financial liabilities if Alphabet or its partners fail to meet contractual obligations.

Capital Spending Reaches Historic Levels

One of the most striking figures in Alphabet’s latest earnings release was its projected capital expenditure for the year. The company said capex could reach as high as $185 billion, more than double what it spent in 2025.

That spending will go toward data centers, custom AI chips, high-performance servers, networking equipment, and the power and land needed to support them. The scale reflects not only Alphabet’s ambitions but also the intensity of competition with rivals racing to build the backbone of the AI economy.

Alphabet Taps Bond Market for $20 Billion

To help finance this expansion, Alphabet is planning to raise around $20 billion through a US dollar bond sale, according to people familiar with the matter. The deal is expected to be issued across four tranches and will reportedly include an unusually long-dated 100-year bond denominated in sterling.

Demand appears strong. Sources say the offering has already attracted interest equivalent to roughly five times the amount being raised, suggesting investors remain confident in Alphabet’s balance sheet and long-term cash-generating power.

The bond sale would exceed earlier expectations of a $15 billion issuance and follows a $25 billion bond offering completed in November. Alphabet’s long-term debt quadrupled in 2025, rising to approximately $46.5 billion.

Chief Financial Officer Anat Ashkenazi said the company is focused on scaling responsibly, emphasizing that Alphabet aims to invest aggressively while preserving a strong financial position.

Compute Capacity Tops Executive Concerns

When asked what worries senior leadership most, CEO Sundar Pichai pointed to the practical constraints of AI expansion rather than demand itself.

He cited compute capacity, power availability, land access, and supply chain bottlenecks as key challenges, noting that scaling fast enough to meet “extraordinary demand” is becoming increasingly complex.

These concerns are not unique to Alphabet. Industry-wide, Alphabet, Microsoft, Meta, and Amazon are projected to increase capital spending by more than 60% this year compared with already elevated 2025 levels, as they compete for advanced chips, skilled labor, and energy resources.

Gemini Gains Momentum Amid Fierce Competition

At the center of Alphabet’s AI strategy is Gemini, its flagship large language model and AI assistant, which competes directly with offerings from OpenAI and Anthropic.

Pichai said the Gemini app now has more than 750 million monthly active users, up from 650 million in the previous quarter, highlighting rapid adoption across consumer and enterprise use cases.

This growth strengthens Alphabet’s position in AI but also amplifies the risks outlined in its filings, particularly as AI tools increasingly act as gateways to information rather than traditional search results.

Strong Ad Growth, But Structural Questions Remain

Despite the new warnings, Alphabet’s advertising business remains robust for now. In the fourth quarter, ad revenue rose 13.5% year on year to $82.28 billion, easing near-term fears that AI is already cannibalizing search.

However, the company made it clear that long-term uncertainty remains. As AI-driven interfaces evolve, Alphabet may need to fundamentally reshape how ads are displayed, priced, and measured.

The latest disclosures suggest that while Alphabet is confident in its AI trajectory, it is also preparing investors for a future in which growth comes with higher costs, greater risk, and more complex trade-offs than ever before.