Alphabet shares fell 7% after the company raised its AI spending cap to $205 billion and posted its first negative free cash flow since going public. Microsoft, Meta and Amazon report this week.
Alphabet's cloud-computing revenue jumped 82% last quarter. The stock dropped 7% anyway.
The selloff came after the company raised its capital expenditure forecast to as much as $205 billion and reported negative free cash flow for the first time since going public. Investors who once cheered AI spending are now punishing it.
"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."
Google has been seen as the biggest AI winner thanks to its Gemini services, homemade data center chips, and a thriving cloud business. That view is under pressure.
Search and other revenue climbed 17% to $63.3 billion. CEO Sundar Pichai said users are asking longer, more complicated questions and that total queries are growing as people use AI features for searches they previously may not have made. AI Overviews and AI Mode increasingly function as components of a single Search experience.
Still to come are earnings from Microsoft and Meta on Wednesday, followed by Apple and Amazon the day after. Google, Amazon, Meta and Microsoft are expected to spend about $724 billion on capital projects this year and nearly $950 billion in 2027, according to 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," said Willy Lee, principal at venture firm Neostellar Capital. "We're going to see scrutiny on all parts of their businesses as they keep spending."
Apple has been something of an outlier. The company has avoided huge AI outlays and chosen instead to collaborate with model developers. Its shares are up 15% for July, on track for their best month in three years. Still, steep demand for memory chips used in AI computing has driven Apple to increase prices on products like MacBooks and iPads.
Microsoft carries an Alpha Score of 61 out of 100, a "Moderate" label from the platform's proprietary model. Shares traded at $381.70 at last check.
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