Cash takes centre stage as investors rethink AI spending boom

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ETMarkets.com

Alphabet shares fell over 13% on Thursday while Oracle slipped 4% and Microsoft was down 0.45% at 3:48 pm ET.

The divergence signals a shift in investor priorities, with spending alone no longer enough to justify lofty AI expectations.

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Alphabet’s AI spending outpaces cash generation

Alphabet spent 121.4% of its operating cash flow on capital expenditure in the September quarter, compared with 68% for Microsoft, excluding finance leases, according to Reuters. Spending above 100% means a company must rely on cash reserves or borrowing to cover the shortfall.

Google’s search revenue grew 12%, missing market expectations of 14.7%, even as CEO Sundar Pichai said search queries were growing at their fastest pace in five years. The slowdown has raised concerns that AI chatbots and agents could challenge the business funding Alphabet’s expansion.

Alphabet’s capital expenditure could reach $205 billion this year, while Google Cloud revenue more than doubled to $30.71 billion. However, its cash burn reached $9.07 billion, underscoring the strain of its investment programme, Reuters reported.

“Microsoft's quarter demonstrated very disciplined growth, whereas Google is burning cash and its core business came in below expectations,” said Melissa Otto, head of research at S&P Global Visible Alpha.

Microsoft demonstrates returns from AI investment

Microsoft generated $18.6 billion in free cash flow in its fiscal first quarter, nearly $10 billion above Wall Street expectations, despite spending $45.2 billion on computing infrastructure. Azure revenue surged 48%, while the company forecast stronger cloud growth for the current quarter, Reuters reported.

Microsoft CEO Satya Nadella said businesses were moving beyond experimentation with AI towards longer-term commitments.

“The shiny object stuff is waning,” Nadella said during an analyst call.

Oracle’s plans to curb external financing further reinforced the market’s focus on cash generation, suggesting investors increasingly want evidence that AI investments can support themselves rather than depend on continued borrowing.