Google Discloses Additional $98.5 Billion in Contingent Commitments, Raising Concerns Over AI Investment Burden

Contingent commitments up $23 billion from previous quarter
Guarantees for data centers and power equipment
Alphabet shares plunge more than 12%

Alphabet, the parent company of Google, has approximately $98.5 billion (about 140 trillion won) in additional contingent commitments, on top of more than $1 trillion in future spending obligations related to building AI infrastructure. With growth in its core revenue source, advertising, also slowing, market concerns over the profitability of its massive AI investments are growing again.

An analysis of Alphabet's third-quarter report for this year, released on October 29 (local time), found that its AI-related contingent commitments totaled $98.5 billion, Bloomberg reported. That was an increase of about $23 billion from the previous quarter.

Contingent commitments are potential financial obligations that a company may have to meet if certain conditions are fulfilled. The commitments disclosed this time included $75.7 billion in guarantees for energy costs related to data center leases and $22.8 billion in financial guarantees to support purchases of power equipment.

Bloomberg reported that Alphabet is guaranteeing equipment purchases by its partners to secure the power equipment needed to build AI data centers. The amount of power-related guarantees reached $16.2 billion, more than double the previous quarter's level. Some of the guarantee agreements run through January 2049.

Alphabet is guaranteeing equipment purchases by its partners to secure the power equipment needed to build AI data centers. The amount of power-related guarantees reached $16.2 billion, more than double the previous quarter's level. Some of the guarantee agreements extend as far as January 2049.

Bloomberg also reported that Alphabet disclosed a possibility that it may have to repurchase, for up to $6.6 billion, AI semiconductor systems it sold to customers. This is because some customers hold the right to resell Google-developed tensor processing unit (TPU) systems at a discount price set in advance. Alphabet said, however, that customers have no economic incentive to exercise this option.

Google Cloud's backlog drew particular attention from the market. Alphabet said that at the end of the third quarter, Google Cloud's backlog stood at $560.8 billion, up $46.9 billion from $513.9 billion in the previous quarter. Of that amount, $16.8 billion came from a contract with Crux AI, a joint venture Alphabet established with private equity firm Blackstone.

Alphabet holds a partial stake in Crux AI. It previously committed to providing up to $10 billion in guarantees to support the company's data center and energy infrastructure development. In other words, 36% of the increase in new orders came from transactions with a company in which Alphabet has invested.

Dan Morgan, a senior portfolio manager at Synovus Trust, told Bloomberg, "This somewhat diminishes the appeal of the growth," adding, "It would have been better if the demand had come from a larger number of external customers." He continued, "It inevitably raises questions about whether the company is generating demand for itself."

Meanwhile, after reporting earnings the previous day that fell short of expectations, Alphabet's investment commitments were disclosed on October 29, and its shares were plunging more than 12% on the New York Stock Exchange. Alphabet's market capitalization at one point during the session plunged by more than $500 billion (about 700 trillion won), sending the tech-heavy Nasdaq index down more than 1%. 

This content was produced with the assistance of AI translation services.