Alphabet’s cash burn raises alarm for Big Tech as AI spending climbs

Bloomberg07-23 21:21

Alphabet’s first cash burn on record has jolted investors awaiting more Big Tech results next week as soaring AI spending strains one of the world’s most profitable companies, and the pain is only ...

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With Alphabet now expected to spend $15 billion more in 2026 and predicting another increase next year, the outlays behind the cash burn will only rise.The cash hit is one of the clearest signs of how AI is reshaping Big Tech. Once prized for fat margins and cash gushers that could easily fund new bets, the group is now leaning on debt and share sales to bankroll spending, which is set to top $700 billion this year as their cash flows fall short.That will sharpen scrutiny when Microsoft, Meta Platforms and Amazon report results next week. Shares of all three companies were down between 2 per cent and 4 per cent before the bell on Thursday as Alphabet led the slide at 5 per cent.Latest technology news on BNNBloomberg.caThe drop reflects investor concerns that the other tech giants will likely follow Alphabet by raising spending forecasts despite payoffs lagging the pace of outlays.“The risk is tilted towards further increases, particularly while Microsoft and others remain capacity-constrained,” Charu Chanana, chief investment strategist at Saxo Markets, said.“But investors will increasingly focus on how much of that cash must be reinvested simply to remain competitive — and whether AI revenue can grow faster than capital expenditure, depreciation and operating costs.”Analysts expect Alphabet and Amazon to burn cash in 2026, while Meta’s cash flow is likely to shrink 95.7 per cent to just $1.85 billion.Microsoft, whose current fiscal year will end next June, is expected to garner $25.39 billion in cash, less than half of the estimated $58.74 billion in the previous financial year.Their capex-to-revenue ratio, a gauge of how much of every sales dollar is being plowed back into spending, is set to nearly double this fiscal year. Meta is expected to hit 54.9 per cent from 35.9 per cent, Alphabet 41 per cent from 23 per cent, Microsoft 45 per cent from 31 per cent and Amazon 25 per cent from 18 per cent.GOOGLE CLOUD GROWTH TO PRESSURE RIVALSAdding pressure to Amazon and Microsoft is also the strong performance of Google Cloud, which has been growing much faster than its bigger rivals in recent quarters in a sign that it could be taking market share.Demand has been so strong that Alphabet executives said they plan to rent out more data-center capacity from other companies to serve their clients, even though it will hurt margins.At least 20 brokerages raised their price targets on Alphabet after Wednesday’s results, lifting the median to $430, nearly 26 per cent above the last close. Citizens was the most bullish at $515, while TD Cowen was the most bearish at $240.“Google Cloud was an absolute blow out,” said Richard Clode, Portfolio Manager of Janus Henderson Investors’ Global Technology Leaders. “Alphabet has competitive advantage running all the way through the stack from their own custom AI chips through to distribution to billions of users.”Growth at Amazon Web Services - the largest cloud provider in the U.S. - is expected to hit 31.04 per cent in the quarter, faster than the 28.4 per cent increase seen in the previous three months.Microsoft, meanwhile, is expected to post growth of 39.98 per cent, on par with the 40 per cent increase seen in January-March quarter.That could weigh on the Windows maker’s shares, which have declined by nearly a fifth this year and are the worst performers in the “Magnificent Seven” group of stocks.Competition is also set to deepen as Meta engages in talks to rent out computing power to Anthropic, adding to an industry that already includes AI cloud firms like CoreWeave CRWV.O.“As compute becomes more available and models become cheaper, cloud capacity may look increasingly interchangeable. That could force providers to spend more while accepting lower returns,” said Lale Akoner, global market strategist at eToro.(Reporting by Aditya Soni and Deborah Sophia in Bengaluru; Editing by Arun Koyyur)Related StoriesAlphabet debuts in Dow Jones Industrial Average as index tilts toward techAlphabet considers first yen bond sale to fund AI goalsAlphabet closes in on Nvidia’s spot as world’s biggest company","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":false,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"isVideo":false,"video":null,"symbols":[],"gpt_button":0,"need_auth":false,"need_login_tip":false,"code":"91000000","status":"200"},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"isLaohu8Offline":false,"tenantId":"TBGLOBAL","deviceId":"web-server-community-laohu8-v3","version":"4.46.0","shortVersion":"4.46.0","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2653729243","isCrawlerRequest":true}