Do you want an overview of the business prospects of a business? Pay attention to what its biggest customers say.
Alphabet (Goog -6.94%)) (Googl -7.29%)) provided its update of the fourth quarter of the 2024 fiscal year after closing the market on Tuesday. And the Google parent has provided excellent news for Nvidia (Nvda 5.21%)) Investors were concerned about the impact of the Chinese company of artificial intelligence (AI) Deepseek.
A silver lining for Nvidia with the disappointing growth of Google
Unfortunately, alphabet news was not so good for its own investors. The actions of the technology giant flowed around 8% at the start of negotiations on Wednesday after the fourth quarter update Tuesday evening.
At first glance, alphabet figures may not seem bad at all. Turnover increased by 12% from one year to the next to 96.47 billion dollars. The net profit jumped 38%, with a profit per share per share of 31% to $ 2.15. Google Cloud returned vaulted from 30% to 12 billion dollars.
What was the problem with these results? Analysts interviewed by Lseg awaited a higher turnover of the fourth quarter of $ 96.56 billion. Google Cloud was the main culprit, with income growth lower than it. In addition, Alphabet projected capital expenses in 2025 between $ 16 and $ 18 billion, well above the level expected by Wall Street.
However, there is a silver lining for Nvidia with the disappointing growth of Google Cloud. The CEO of Alphabet, Sundar Pichai, noted that the income of the clouds “are correlated with the time of the deployment of new capacities”. Financial director Anat Ashkenazi has confirmed that the company continues to have a greater demand for cloud services than the capacity available, drawn by the demand for AI products. In other words, Google Cloud could have generated more income in the fourth quarter if it had more capacity.
Ashkenazi said: “(W) e is in a situation of close supply, working very hard to provide more online capacity.” This is the reason for capital expenses higher than the alphabet in the first quarter. The company plans to spend more on the construction of its technical infrastructure, in particular servers, data centers and networking.
All this should be music with Nvidia’s ears. Although Google has its own AI chips, it is always based strongly on the Nvidia Gpus. In the call of the results of the fourth quarter, Pichai underlined the “solid relationship of his business with Nvidia”. He noted that Google was the first to announce a customer using the new Blackwell platform from Nvidia. Google needs more capacity to manage AI demand; Nvidia will almost certainly benefit.
Deepseek, Shmeepseek?
The reaction of the market to the launch by Deepseek of his reasoning model R1 seemed to indicate that the best days of Nvidia are behind. Many investors have panicked in fear that the profitable technology of the Chinese IA company will shake the world of AI and considerably reduces the demand for GPU of Nvidia.
However, when asked when the gains of the fourth quarter on the impact of Deepseek, Pichai did not seem alarmed. He first complimented the work that the Deepseek team had accomplished. But he was not surprised by the progress of the company. Pichai even argued that Google Gemini 2.0 Flash and 2.0 Flash Thinking Models “are some of the most effective models, including comparing the Deepseek V3 and R1”.
What is the key to remember? The CEO of one of Nvidia’s largest customers does not consider Deepseek as a huge threat. And this big customer needs more capacity (and therefore more Nvidia GPU) despite what he considers the most effective AI models. This should be welcome for news for investors who are concerned about Deepseek’s challenge in Nvidia.
Pichai also noted: ”
The future is still brilliant for the two companies
I think Alphabet and Nvidia look alike in several ways. The two actions were beaten by concerns that seem only temporary, in my opinion. The growth of the alphabet income should bounce back as it increases the ability of the cloud. I also think that fears of a disruptive threat to NVIDIA of Deepseek also fade over time. The future is still brilliant for the two companies.
Suzanne Frey, director of Alphabet, is a member of the board of directors of Motley Fool’s. Keith Speights has alphabet positions. The Motley Fool has positions and recommends Alphabet and Nvidia. The Word’s madman has a Disclosure policy.