Google remains committed to investing $75 billion in AI despite macroeconomic uncertainties

Alphabet, the parent company of Google and YouTube, confirmed its plan to spend $75 billion over the course of the year, despite macroeconomic uncertainties posed by tariffs and increasing operating expenses.

CEO Sundar Pichai said earlier this month at the company’s annual conference for its cloud computing unit that the investment would mostly focus on building out data center capacity as AI infrastructure.

This came after Alphabet posted first-quarter earnings on Thursday with revenues that beat expectations, sending shares up over 4% in after-hours trading.

“We’re obviously not immune to the macro environment,” said said Philipp Schindler, Chief Business Officer at Google, fielding a question about tariff impacts during the investors call, “But we wouldn’t want to speculate about potential impacts, beyond noting that the changes to the de minimis exemption will obviously cause a slight headwind to our ads business in 2025, primarily from APEC-based retailers.”

“And maybe to zoom out, I would say we have a lot of experience in managing through uncertain times, and we focus on helping our customers by providing deep insights into changing consumer behavior that is relevant to their business,” Schindler added.

The de minimis exemption previously allowed goods valued below $800 to enter the US without paying duties, which worked to the advantage of Chinese companies selling cheap goods to US consumers, especially fast-fashion apparel retailers.

Nikhil Lai, senior analyst in performance marketing at Forrester, told Business Insider that the possibility of stagnating inflation due to tariffs could “dent Google’s advertising revenue” over the next few quarters.

“Shein and Temu are going to spend a lot less on Google than they did before tariffs — that’s going to have a material impact on Google’s top line,” said Lai. “Every global retail supply chain will become more expensive; I don’t think they can pass those added expenses onto consumers.”

“Going out to eat, traveling this summer, advertisers will spend less as well,” Lai added.

Google also faces increasing expenses and legal pressure

In addition to tariff risks, Anat Ashkenazi, CFO of Google and Alphabet, said during the investors’ call that the company could be facing headwinds “in the form of higher depreciation,” which would put pressure on profits.

“We had about a 31% year-over-year growth and depreciation this quarter, and it will be higher as we go throughout the year, so think about that as a headwind that we have to manage against,” Ashkenazi added. “So while we’re trying to offset as much of the headwind associated with the increase in infrastructure costs, it will become more difficult.”

According to Alphabet’s quarterly report, the company’s total operating expenses increased 9% to $23.3 billion in comparison to the first quarter of 2024, while research and development investments increased by 14%, driven by increases in compensation and depreciation expenses.

Additionally, administrative expenses also spiked by 17%, which Ashkenazi attributed to the “impact of charges for legal and other matters.”

Alphabet’s earnings call on Thursday came amid mounting legal pressure from federal regulators. The Justice Department and several states filed an antitrust lawsuit against Google in 2020, and earlier this year, DC District Judge Amit Mehta ruled the company maintained its dominance by spending billions to make its search engine the default across major platforms.

Separately, District Judge Leonie Brinkema of the Eastern District of Virginia also ruled this month that Google holds an illegal monopoly in parts of the online advertising industry.

Google and the Justice Department are now in a remedies trial to determine what actions the company must take, which in the worst-case scenario, could force the company to divest certain products like the Chrome browser.