Google-parent Alphabet’s stock sank 7% after the closing bell today following its Q1 earnings report. That was partly because the company announced much higher 2025 capital expenditures than analysts anticipated. After spending $14.28 billion on capex in Q4-2024 (above the consensus estimate of $13.26 billion), Alphabet will spend $75 billion on capex during 2025, said CEO Sundar Pichai, mostly on building out its AI-related businesses. That's 29% more than the $59 billion expected by analysts. The company is clearly signaling that it disputes claims by Chinese AI lab DeepSeek that its AI is much cheaper and performs just as well as comparable US software programs. Microsoft is still aiming to spend $80 billion on AI infrastructure this year.

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February 4, 2025

QuickTakes

Animal Spirits Boosting

CapEx Plans

Google-parent Alphabet’s stock sank 7% after the closing bell today following its Q1 earnings report. That was partly because the company announced much higher 2025 capital expenditures than analysts anticipated. After spending $14.28 billion on CapEx in Q4-2024 (above the consensus estimate of $13.26 billion), Alphabet will spend $75 billion on CapEx during 2025, said CEO Sundar Pichai, mostly on building out its AI-related businesses. That's 29% more than the $59 billion expected by analysts. The company is clearly signaling that it disputes claims by Chinese AI lab DeepSeek that its AI is much cheaper and performs just as well as comparable US software programs. Microsoft is still aiming to spend $80 billion on AI infrastructure this year.

The initial reaction to Alphabet's earnings is similar to investors' flinch on the DeepSeek news just last week. Many have become skeptical that the returns on AI will justify big tech companies' massive outlays.

In any event, since the presidential election, small, medium, and large US enterprises alike have been saying they plan to expand their capacity sharply (chart). We expect they will also boost both productivity and employment. Animal spirits are back.

Today's economic data suggest the labor market is finding a balance at full employment, which supports our optimism around economic growth. Here's more:

(1) JOLTS hiring and quits. December's JOLTS data showed hiring and quits all remaining on their downward trends of the past couple of years.

(2) JOLTS job openings. December's job openings fell to 7.6 million but remained above pre-pandemic highs (chart). Over the past couple of years, job openings have declined along with quits. We expect to see significant declines in job openings and increases in quits at federal government agencies in 2025 as Elon Musk's DOGE attempts to increase government efficiency.

(3) Labor supply & demand. Demand for workers and the available labor supply were roughly in balance during December (chart). We are expecting to see significant upward revisions in both household employment and the labor force. That's because the Census Bureau recently "found" several million additional immigrants over the past few years.

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