Big Tech Companies Accelerate Competition in Investment

Rising Investment Plans of Technology Giant Companies

Alphabet, Microsoft, and Meta, prominent technology companies in the U.S., have announced plans to increase their capital expenditures for the upcoming year. However, investors have more confidence in Alphabet's ability to finance its investment plans through cash flow.

These three companies indicated that they will have higher annual capital expenditures related to investments in chips and data centers. During this time of year, the stock prices of all three companies significantly increased due to investors believing they will win the artificial intelligence race. However, investors only reacted positively to Alphabet's report; as Alphabet's ability to balance rising expenses with strong cash flow was taken into account when calculating the cost of investments for each company.

While all companies reported extraordinary revenue growth in their core business areas, shares of Alphabet rose by 6%, whereas Microsoft decreased by 4% and Meta lost 8% of its value. Analysts believe an important reason for this divergence is Alphabet's ability to balance rising expenses with strong cash flow.

Dave Heger, a senior equity analyst at Edward Jones, stated, "The fact that capital expenditures constitute a lower percentage of revenue and cash flow provides greater assurance for investors. All players are dramatically increasing their spending, and there are significant concerns about the pressure on free cash flow."

Alphabet made a capital expenditure of $23.95 billion in the third quarter, which accounts for 49% of the cash generated from its operations. For Meta, this ratio was determined to be 64.6%, and for Microsoft, it was 77.5%.

Josh Gilbert, a market analyst at eToro, noted, "Ongoing investments in data centers and artificial intelligence infrastructure are a theme we see during this earnings period in Big Tech. However, Alphabet is in a better position than other companies to meet its expenses with cash flow and is operating on all cylinders."

While investors are cautious about spending on artificial intelligence, major technology companies are not fully detailing how much AI contributes to revenue and profitability. As multi-billion dollar deals are made in the AI industry, investors are becoming more prudent about cyclical investments.

Nevertheless, executives emphasized that they must spend to meet the demand for artificial intelligence computing power. Meta CEO Mark Zuckerberg stated that in the worst-case scenario of overspending on artificial intelligence, the company would "experience some losses and amortization, but would grow from it and utilize it over time."

Companies with stronger cash flows can afford to be more aggressive in their investments in artificial intelligence infrastructure, as they can tolerate lower returns on these expenditures, said Dan Morgan, a portfolio manager at Synovus Trust.

Major cloud computing provider Amazon is expected to provide a new perspective on artificial intelligence investments and returns in the technology sector when it reports its third-quarter earnings on Thursday.