AI summary
Summary of article:
Investors are shifting their focus from AI expansion to cash flow, with Microsoft and Oracle being praised for their ability to support investment, while Alphabet is under pressure due to slow discovery and pressure on capital spending.
Cash flow is king again.
Microsoft AndOracle (Oracle) proved to the market on Wednesday that it has the ability to support massive AI investments without reaching out to investors, and its stock price received buying support. In contrast, Alphabet has come under selling pressure as it continues to burn cash.Google The slowdown in search growth has also deepened market suspicions: Is competition destroying this core business that supports the expansion of AI?
Microsoft’s share price rose more than 3% after hours, while Alphabet’s share price fell nearly 10%. It is becoming clearer to investors which companies are making money from AI and which companies are still struggling to control costs.
In the past, companies that actively invested money or even borrowed money to acquire computing power were often able to win favor from the market; Now, investors require companies to prove that the growth from these investments is enough to support the next round of spending.
Meta sounded the alarm last week. Even though revenue growth is better than expected and the outlook is optimistic, the market is more concerned about the cash crunch. Oracle, on the other hand, announced plans to set a limit on external financing and expects to be free cash flow positive in the second half of fiscal 2028. Its share price closed up nearly 11% on Wednesday.
“The situations are very different between Alphabet and Microsoft,” said Melissa Otto, head of research at S&P Global’s Visible Alpha.
He said: “Microsoft showed very modest growth this quarter, but Google continued to spend money, and its core business did not perform as well as expected.” This may lead investors to start asking whether AI is taking away Google’s search market share.
Google’s search business revenue rose 12% in the third quarter, missing market estimates of 14.7%. Although CEO Sundar Pichai said the number of searches was growing at the fastest rate in five years, revenue fell short of market expectations.
AI chatbots and agents are changing the way we seek information, threatening what has been a lucrative business for years; Google will also need to invest more in AI. Chief Financial Officer Ashkenazy told analysts that capital spending will increase significantly in 2027.
Alphabet’s capital spending this year is expected to reach US$205 billion. This staggering investment will actually fuel the growth of another major AI business.
Google Cloud’s revenue more than doubled to $30.71 billion from the same period last year, but was still hit by heavy expenses. The gap widened to $9.07 billion in the third quarter, after Alphabet experienced negative free cash flow in a single quarter for the first time in the second quarter.
Jeremy Saltzberg, vice president and senior investment director at Czech Capital, which holds shares of Alphabet, said: “Google is really a completely different company now than it was three years ago, five years ago or 10 years ago.”
He disagrees with the market’s skepticism about spending and believes that OpenAI and Anthropic are gradually taking the lead in Silicon Valley AI model competition, and Alphabet should invest heavily to maintain competition.
Salzberg said, “We believe this is a race that only people with deep pockets can afford.” “If you don’t have $150 billion to spend on capital spending next year, don’t do it.”
