Tech Giants’ $724 Billion AI Bill Sparks Investor Worry

Google parent Alphabet last week reported an 82% increase in cloud computing revenue.

Investors, however, were more concerned with the company’s artificial intelligence spending, Bloomberg News reported Sunday (July 26), arguing this comes amid a shift for American tech giants, who had for years seen their stock prices climb amid steep AI capital expenditures.

“People are really focused on capex, obsessed with it. It used to be the more the better, but now it is the less the better,” said Jason Lemire, chief investment officer at Bold Wealth Partners. “We’re seeing capital raises, negative cash flows, rising debt. All that adds risk to the picture.”

Alphabet’s stock fell by 7% last week after it raised its capital expenditure forecast to as much as $205 billion while reporting that its free cash flow turned negative in the second quarter for the first time since going public.

Bloomberg noted that selloff illustrates the way the narrative surrounding AI and the biggest tech companies has shifted, especially as Google has been viewed as the biggest AI winner thanks to its Gemini AI services, homemade data center chips and thriving cloud-computing business.

Still to come are earnings from Microsoft and Meta on Wednesday (July 29) followed by Apple and Amazon the following day. Google, Amazon, Meta and Microsoft are expected to spend about $724 billion on capital projects this year and nearly $950 billion in 2027, per analyst estimates compiled by Bloomberg.

“We’re in a period where people are inclined to sell off on capex, and Microsoft and Meta and Amazon are all holding hands with Alphabet and jumping in to spend,” Willy Lee, principal at venture firm Neostellar Capital, told Bloomberg. “We’re going to see scrutiny on all parts of their businesses as they keep spending.”

The report added that Apple has been something of an outlier, as it has avoided huge AI outlays and chosen instead to collaborate with model developers, with the company’s shares up 15% for July, on track for their best month in three years.

Still, Bloomberg added, Apple has faced some AI-related headaches. Steep demand for  memory chips used in AI computing have driven Apple to increase prices on products like MacBooks and iPads.

Writing about Google’s earnings last week, PYMNTS said that search remains the “clearest test” of whether the company “can introduce generative AI as a tailwind to its core business.”

Search and other revenue climbed 17% to $63.3 billion, while AI Overviews and AI Mode increasingly function as components of a single Search experience.

CEO Sundar Pichai said users are asking longer and more complicated questions, and Google is witnessing growth in total queries as people use AI features for searches they previously may not have made.