Big tech companies are accelerating their competition to build artificial intelligence (AI) infrastructure, but market evaluations are shifting towards how much cash they are generating and how well they are controlling cash burn.
On October 28, Microsoft and Alphabet, Google's parent company, released their quarterly earnings, highlighting this change in investor sentiment.
Both companies reported solid growth in their performance metrics. Microsoft saw a 25% increase in revenue from its AI agents and infrastructure, while its core cloud service, Azure, grew by 48%. Google Cloud also demonstrated significant expansion, growing over 100% year-on-year.
However, their stock prices reacted differently following the earnings announcements. Microsoft’s shares rose, while Alphabet’s stock plummeted by more than 10%.
The critical factor distinguishing the two companies was their free cash flow (FCF).
This quarter, Microsoft invested $45.2 billion (approximately 61 trillion won) in AI capital expenditures, while Alphabet spent $51.4 billion (about 69 trillion won), with both companies pouring astronomical amounts into their operations.
Despite aggressive spending, Microsoft achieved a quarterly FCF surplus of $18.6 billion (around 25 trillion won), more than double Wall Street's forecast of $8.54 billion.
Satya Nadella, Microsoft’s CEO, expressed confidence, stating, "We are driving innovation in the cost-performance curve to enable all customers to convert tokens into business outcomes."
In contrast, Alphabet's capital expenditures exceeded its operating cash flow, resulting in an FCF deficit of $9.065 billion (approximately 12 trillion won). This marks the second consecutive quarter of losses following its first FCF deficit since going public in 2004.
Sundar Pichai, Alphabet’s CEO, noted, "Our comprehensive AI approach is driving momentum across the business," but this did not alleviate market concerns.
Additionally, Alphabet's overall revenue fell short of market expectations, compounded by losses from its SpaceX stake and weak performance in core search advertising, further cooling market reactions.
The contrasting evaluations of the two companies indicate that the AI market is shifting from merely establishing infrastructure to demonstrating return on investment (ROI).
As demand for tokens surges and supply chain challenges necessitate unsustainable spending levels, investment is increasingly concentrating on companies that have proven robust financial health and consistent cash generation.
Reuters reported that AI market investors are simultaneously concerned about potential overspending risks and the dangers of falling behind in competition due to insufficient investment.
* This article has been translated by AI.
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