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Alphabet's shares fell by approximately 7% in premarket trading on Wednesday following disappointing news of the company's slowing cloud growth and concerns over its significant investment in building artificial intelligence (AI) infrastructure.

Alphabet has heavily invested in infrastructure to enhance AI research and integrate it into products such as search and cloud services. However, its plan to allocate $75 billion towards these efforts this year surpassed Wall Street's expectation of around $58 billion by 29%, according to LSEG data.

Kathleen Brooks, research director at trading platform XTB, remarked, "This is a significant increase, showing that Alphabet is fully committed to its AI plans."

The rise of low-cost AI offerings from China, which reportedly match or surpass U.S. industry-leading models at a lower price point, has raised questions about the necessity for Big Tech companies to invest billions of dollars in this field.

While Google's revenue from its cloud business increased by 30% to $11.96 billion in the fourth quarter, slower growth than in the previous quarter, Microsoft's Azure cloud platform outpaced Google's with a higher growth rate. Microsoft's shares declined by 0.4% in premarket trading, while Amazon, set to report results on Thursday, fell by 1.7%.

Matt Britzman, senior equity analyst at Hargreaves Lansdown, stated, "The AI story remains strong, indicating a surging demand for cloud-based AI training and robust growth in Gemini. This is positive news not only for Alphabet's cloud business but for the broader AI market."

Alphabet's advertising business faces increasing competition as advertisers gravitate towards popular social media platforms like Meta's Facebook and Instagram, as well as ByteDance's TikTok.

Multiple brokerages have lowered their price target on Alphabet's stock, bringing the median target to $220, according to LSEG data, compared to the stock's price of $191.20 in premarket trading.

Year-to-date, Alphabet's shares had risen by 9% through Tuesday, slightly outpacing Amazon's 10.3% increase, while Microsoft's shares had declined by 2.2%.

Despite the positive market performance, Alphabet's shares are valued as the cheapest of the three companies, with a 12-month forward price-to-earnings ratio of 22.7, in comparison to Amazon's nearly 39 and Microsoft's 29.