The Worst Day

Half a Trillion Wipeout

Google-parent Alphabet suffered its worst trading day ever on Thursday. Shares plunged 13%, erasing roughly $500 billion in market value as investors balked at its enormous AI bill.

Alphabet spent over $51 billion on capital expenditures last quarter, with free cash flow turning $9 billion negative. This means that the company spent much more than brought in.

And that’s not all: AI may be nibbling at the machine that funds all that spending. Google admitted its conversational “AI mode” searches make less money from ads than traditional searches. Search-ad revenue grew just 12% from last year to $63 billion, below expectations and marking the third straight quarter of slowing growth.

Wall Street Wants Results

The ugly reception stretched well beyond Alphabet and Amazon. Investors are getting seriously worried about how the big tech is torching through cash and constantly returning to investors for money.

• Amazon: Spent over $77B of capital, expecting overall capital expenditure to hit $220B this year. Crucially, forecasts even higher spending in 2027.
• Meta: Announced plans for a colossal $95B stock sale after reporting negative free cash flow for the first time since 2012.
• Microsoft: Offered voluntary buyouts to about 60,000 employees and followed strong earnings with a planned $25B bond sale. The only tech giant this quarter to report a positive free cash flow.

Then came Intel. Weak PC demand, manufacturing problems and heavy spending sent its shares down roughly 25% in Friday premarket trading, adding another casualty to the rout.

Spend Now, Prove It Later

Tech companies still know how to grow and make money. Cloud business, in particular, is booming. Google Cloud more than doubled revenue, Microsoft’s Azure grew 48%, and the market leader — Amazon’s AWS — expanded 39% year on year.

The problem is that building enough infrastructure to satisfy that demand is consuming extraordinary amounts of capital. The hyperscalers are increasingly turning to bonds and new shares to keep building data centers, buying chips and securing electricity.

Alphabet exposed the nastiest possibility of all: companies may have to spend hundreds of billions on AI even when the technology threatens their existing profit engines. It’s spending to cannibalize its own business in order to survive in the AI age.