Google's parent company, Alphabet, said it plans "significantly larger" capital spending in 2024 than in previous years to boost its artificial intelligence capabilities to improve performance in its core advertising and cloud services segments. Finance chief executive Ruth Porat said the group sees “extraordinary” potential in the applications of artificial intelligence for users and that the technology offers “long-term growth opportunities”. In particular, Alphabet is targeting advanced upgrades to its generative artificial intelligence chatbot 'Bard' later this year.

The comments, provided by Alphabet, come as the company reported weaker-than-expected fourth-quarter advertising growth, but revenue and profit beat Wall Street expectations thanks to strong performance in its cloud business. Shares of Alphabet fell in premarket trading before markets opened on Tuesday. Advertising revenue increased 11% year over year to $65.52 billion, but fell short of $65.8 billion. YouTube's advertising revenue grew 20% to $9.2 billion.

Advertising is an important component of Alphabet's total revenue, which has come under pressure recently as customers cut spending in response to the Federal Reserve's policy of tougher interest rate hikes. But this pressure is gradually easing on hopes that the Fed's tightening cycle will gradually be overcome.

Alphabet reported earnings per share (EPS) of $1.64 and revenue of $86.31 billion, largely driven by 26% growth in Google's cloud services segment. Analysts surveyed by Investing.com expected earnings per share of $1.59 and revenue of $85.23 billion.

Alphabet rival Microsoft also reported solid quarterly results after the market closed on Tuesday. But Wall Street's lackluster response shows there remain doubts about whether the two companies can sustain the rapid spending levels needed to deliver generative artificial intelligence.

“Looking at the bigger picture, the trend this earnings season is clear: As monetary conditions improve, markets want companies with enough spending power to dominate the innovation war, as expected,” said Thomas Monteiro, Senior Analyst at Investing.com. “He said. “In this case, you want to see improved margins and favorable cash flow rather than actual [earnings per share] so you understand that the company will be able to compete in the AI battle.”

Reporter Rashin Ebrahim contributed to this report.