Cloud Stocks: Alphabet Acquires Intersect to Build AI Capacity

Last week, Alphabet (Nasdaq: GOOG) announced its fourth quarter results that soared past market expectations. The company is looking to fund the AI initiatives by raising money through bonds.

Alphabet’s Financials

Alphabet’s revenue grew 18% to $113.8 billion, ahead of analyst estimates of $111.4 billion. EPS of $2.82 was also ahead of analyst estimates of $2.63.

Advertising revenues grew 14% to $82.28 billion, with YouTube ad revenues climbing 9% to $11.38 billion. The market was looking for revenues of $11.84 billion from YouTube. Google Cloud revenues grew 48% to $17.66 billion and were ahead of the market’s estimated $16.18 billion. The segment’s backlog increased 55% sequentially to over $240 billion at the end of the fourth quarter. Revenues from other bets, which includes the Life Sciences unit Verily and self-driving car unit Waymo, was $370 million, down 8% from a year ago. The segment continues to incur losses and losses grew more than 200% to $3.61 billion.

Overall, Alphabet ended the year with revenues growing 15% to $402.8 billion with an EPS of $10.81.

Like other tech players, Alphabet continues to invest in building AI infrastructure and capacity. It announced plans to more than double its capital expenditure in 2026 to $175-$185 billion as it works on building AI compute capacity for Google DeepMind.

Alphabet’s Intersect Acquisition

Keeping in line with increased spending on AI initiatives, Google announced the acquisition of data center player Intersect for an estimated $4.8 billion. San Francisco-based Intersect was founded by Sheldon Kimber in 2016 with the objective of providing fast, cheap, clean, and reliable energy and data center infrastructure. Alphabet was already a minority investor and a strategic partner in Intersect. Through its partnership, Intersect aimed to develop gigawatts of data center capacity across the US, including a $20 billion investment in renewable power infrastructure by the end of the decade.

As part of the acquisition, Intersect’s team and multiple gigawatts of energy and data center projects in development, or under construction, will move to Google. Intersect will also continue to explore a range of emerging technologies to increase and diversify energy supply, while supporting Google’s US data center investments to meet its Cloud customers’ and users’ demand. 

Alphabet is hoping to leverage Intersect to help expand capacity and increase speed in building new power generation needed for the AI-drive data center load. Rival OpenAI has made more than $1.4 trillion of infrastructure commitments to build out data centers. Google is looking to up the ante with this acquisition.

Google’s AI Growth

Google is seeing significant uptick in AI demand. Its AI app Gemini now has 750 million monthly active users, compared with 650 million last quarter. It recently also entered into an agreement with Apple where Apple will use Gemini to power its Siri overhaul this year. Gemini will cater to the AI needs of 2.5 billion active devices, even if it will not get specific user data. Apple plans on paying Google about $1 billion a year for the arrangement. The Gemini-powered version of Siri is expected this month. Apple is also expected to be looking up to Google’s infrastructure for AI features later this year.

To meet its AI capex ambitions, Alphabet is looking to raise $20 billion from a US dollar bond sale. The planned sale would take place over several tranches, including a 100-year bond deal in sterling. Alphabet also held a $25 billion bond sale in November. It has seen its long-term debt quadruple in 2025 to $46.5 billion.

According to reports, Alphabet, Microsoft, Meta, and Amazon together are looking to increase their capex this year by more than 60% as they build their AI capacity by buying or developing chips, building new facilities and technology. All of this spend increase is not yet translating into meaningful revenues. Google boasts of the increasing usage of Gemini, but it has not shared details of the revenues that it earns from the service. Enterprise AI revenues will be an interesting metric to see how fast the return is coming from these investments.

Google’s stock is trading at $324.40 with a market capitalization of $3.85 trillion. It hit a 52-week high of $350.15 earlier this month and has recovered from the 52-week low of $142.66 in March last year.

Disclosure: All investors should make their own assessments based on their own research, informed interpretations, and risk appetite. This article expresses my own opinions based on my own research of product-market fit, channel execution, and other factors. My primary interest is in product strategy. While this may have bearing on stock movements, my writings tend to focus on long-term implications. The information presented is illustrative and educational, but should not be regarded as a complete analysis nor recommendation to buy or sell the securities mentioned herein. I am not a registered investment adviser and I am not receiving compensation for this article. I am an investor in this company.

Photo Credit: Photo Mix from Pixabay

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This segment is a part in the series : Cloud Stocks