Three of the world’s most profitable companies have just come off a weak, very weak earnings season. And precisely the businesses that made them rich aren’t the real problem. Alphabet (Google’s parent company) lost more than $500 billion in market value in one day, and Meta and Amazon also saw their shares fall after filing reports. The common thread is the huge amount of money that is being allocated to artificial intelligence.
Why does it matter? For years, Big Tech was the safest bet in the market as it generated mountains of cash. Don’t get me wrong, they keep making it. But now, the AI race is eating up that cash, and investors are wondering how long they can keep funding it. Alphabet, Microsoft, Amazon and Meta are estimated to spend $700 billion on data centers, chips and networks this year, as shared by Reuters.
the numbers According to Alphabet’s latest financial quarterly report, revenue rose 25% to $127.6 billion, and Google Cloud managed to generate more than double the revenue from the same period last year, reaching nearly $31 billion. It looks like everything is fine. But still, the stock fell nearly 13% on Thursday, and the company’s value fell from $3.97 billion to $3.46 billion. Fell in one fell swoop.
Two problems explain why:
- Search is slowing down. The same report noted that Google search advertising grew 12% annually, down from 17% in the second quarter and 19% in the first. In total, Alphabet generated $82 billion in ad revenue in the quarter, falling short of Wall Street expectations of $83.4 billion, according to Reuters.
- Negative cash flow. Alphabet posted negative free cash flow of $9.1 billion, its second consecutive negative quarter after decades of stagnant revenue. Free cash flow is what remains after a company pays for its operations and investments. Being negative indicates that you are spending more than you are earning. And you can imagine why the cost outweighs the income: AI.
AI eats business. Google Chief Business Officer Philipp Schindler blamed the slowdown in search advertising on the increased use of AI mode, a chatbot-style version of search that Google is still figuring out how to monetize, Reuters reported. In other words, the artificial intelligence that Google is building seems to be undermining the very product that funds it.
Meta and Amazon. Same pattern:
- goal Shares fell about 7% after the company reported negative free cash flow of $2.12 billion and raised its 2026 capital spending guidance to $145 billion from $135 billion, according to CNBC. And bad business for credit markets, as the cost of insuring meta loans in the event of default is now at an all-time high. Revenue was solid, though, rising 26% to $64.6 billion.
- the amazon According to the latest report, sales rose 11% to $201 billion, but its cash flow was also negative at $42 billion. Shares fell 6% in after-hours trading. Its CEO, Andy Jassy, defended the spending by arguing that Amazon has two potential trillion-dollar businesses, pointing to Amazon’s internal chips and its bedrock AI platform. He acknowledged that “it would be more comfortable” if the costs were spread over 25 years, but said that “that’s not the world we live in.”
Thank God there are clouds. It’s the only place where money is clearly coming back to most big tech companies. As for Alphabet, Google Cloud’s order book reached $561 billion. And when it comes to spending on AI, the problem for these companies is that there is a certain skepticism in the market, since building capacity today does not guarantee that it will cover it tomorrow. And Alphabet has already said its 2027 capital spending will increase significantly, from $195 billion to $205 billion.
Microsoft. It is the only organization of the Big Four that has stopped losing by a certain amount. And as we recently reported, its revenue rose nearly 20% to $92 billion, Azure grew 48% and free cash flow (very positive) reached $19.6 billion, about $1 billion more than forecast. Shares rose more than 5% in after-hours trading, though they fell 1% the next day, according to Reuters.
Picture | Xataka with the Magnificent
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