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SummaryCompaniesAlphabet's strong cash flow supports capital spendingInvestors cautious of AI investments with unclear returnsZuckerberg acknowledges risks of over-investing in AI Oct 30 (Reuters) - Three of the biggest U.S. technology companies flagged plans on Wednesday to accelerate capital spending over the next year but investors were most accepting of Google-parent Alphabet's (GOOGL.O), opens new tab ability to fund its plans from its cash flow. Alphabet, Microsoft (MSFT.O), opens new tab and Facebook-owner Meta (META.O), opens new tab all announced plans for higher annual capital expenditures as they pour money into chips and data centers. Advertisement · Scroll to continue Shares of all three have risen substantially this year on expectations that they will be winners in the AI race, but investors only cheered Alphabet's report as they calculated the costs to each firm of the investments. All three reported stellar revenue growth in their key businesses, but investors pushed Alphabet shares up 7.3% while knocking down Microsoft by 3% and Meta by 7% in premarket trading. A key reason for this, analysts say, is Alphabet's ability to balance its soaring expenses with strong cash flow. "I would think that comes into play - to have capital spending be a lower percentage of revenue and cash flow. That maybe gives investors more comfort. All the players are ramping up spending pretty dramatically, and there’s been a lot of concern about pressure on free cash flow," said Dave Heger, senior equity analyst Edward Jones. Advertisement · Scroll to continue Get the key points from this story with Reuters AI Alphabet's capital expenditure of $23.95 billion in the September quarter was 49% of its cash generated from operations. The percentage for Meta, however, is 64.6%, with Microsoft even higher at 77.5%. "Ongoing investments in data centers and AI infrastructure is a theme we've seen across Big Tech this earnings season. But unlike some of its peers, Alphabet is more than covering that spend with cash flow, and it's firing on all cylinders," said Josh Gilbert, market analyst at eToro. Investors have become wary of AI spending but big tech companies are not detailing exactly how much AI contributes to revenue and profit. With multi-billion-dollar deals being struck across the AI industry, investors are also growing cautious of a web of circular investments. Still, executives were adamant that they had to spend to keep up with demand for AI computing power. Meta CEO Mark Zuckerberg said that in the worst-case scenario of over-investing in AI, the company would see "some loss and depreciation, but we'd grow into that and use it over time." Ad Break Coming Up NEXT StayNext OffEnglish 180p288p360p480p540p576p720pHD1080pHDAuto (180p) About ConnatixV2127676363 About ConnatixV2127676363 Continue watchingafter the adVisit Advertiser websiteGO TO PAGE Companies with stronger cash flow can afford to invest more aggressively in AI infrastructure because they can tolerate lower returns on those outlays, said Dan Morgan, portfolio manager at Synovus Trust. Major cloud computing provider Amazon (AMZN.O), opens new tab will offer another piece of the AI investment picture and returns in the tech space when it reports third-quarter earnings on Thursday. Reporting by Deborah Sophia, Akash Sriram, Jaspreet Singh and Aditya Soni in Bengaluru; editing by Peter Henderson and Christian Schmollinger Purchase Licensing Rights Akash SriramThomson ReutersAkash reports on technology companies in the United States, electric vehicle companies, and the space industry. His reporting usually appears in the Autos & Transportation and Technology sections. He has a postgraduate degree in Conflict, Development, and Security from the University of Leeds. Akash's interests include music, football (soccer), and Formula 1.EmailXInstagramLinkedin
