Sundar Pichai, Alphabet CEO.
Source: Alphabet
meta and alphabet Both companies beat expectations in their earnings reports on Wednesday, posting their best growth in years. They also raised guidance on capital spending this year, telling investors they will continue to pour money into artificial intelligence infrastructure.
But despite similarly upbeat results, Wall Street’s reaction was very different. Alphabet shares soared 7% in after-hours trading, while Meta shares fell 7%.
This is a continuation of a theme that has hampered Meta throughout the generative AI boom. Alphabet and its fellow hyperscalers, on the other hand, microsoft and Amazon Companies have large cloud infrastructure businesses that can turn AI investments into revenue, but Meta doesn’t have such a service.
This will make spending on AI a tough sell for Meta CEO Mark Zuckerberg. The return on investment has to come elsewhere, and that primarily means increased advertising revenue and profitability.
The four largest tech companies announced their quarterly results on Wednesday. Alphabet, Microsoft, and Amazon all posted stronger-than-expected growth in their cloud sectors. Meta’s stock price is the only one of the four traded companies to decline.
Heading into the earnings release, Alphabet’s stock price has risen 118% over the past year, outpacing Meta’s 21% rise. Amazon rose 40% and Microsoft rose about 8%.
“Google has outperformed its peers, which is well reflected in its current valuation,” analysts at DA Davidson said in a post-earnings report, maintaining a neutral rating.
Overall capital expenditures are impressive, and they are only going to get bigger. That’s in part because companies facing a global memory shortage as demand for AI soars are forcing them to spend more on memory.
Alphabet on Wednesday updated its 2026 capital spending outlook range to $180 billion to $190 billion, from its previous estimate of $175 billion to $185 billion. Chief Financial Officer Anat Ashkenazi said the company’s capital spending in 2027 is expected to be “significantly higher” than this year’s numbers.
This spending forecast, coupled with a 20% revenue increase, made it the fastest quarter since 2022. Cloud revenue surged 63%, and Alphabet said it had $460 billion in backlog, nearly double from last quarter, driven by demand for AI infrastructure.
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Meta has raised its capital spending outlook for this year to $125 billion to $145 billion from the previous range of $115 billion to $135 billion, which the company said “reflects our expectations for component price increases this year and, to a lesser extent, additional data center costs to support capacity in future years.”
Similar to when Meta raised its capital spending outlook in October, Zuckerberg spent time on the earnings call defending the company’s massive AI spending, touting it as necessary for future growth while strengthening its core online advertising business.
“The trends over the last few years have been clear: the returns to increasing engagement with people and value for advertisers are increasing,” Zuckerberg said. “This encourages them to continue to invest heavily in things that are expected to increase in value over the next few years.”
In terms of revenue, it has experienced more impressive growth than Google. Sales increased 33% year-on-year, marking the strongest period of expansion since 2021.
Zuckerberg said the company is “very focused on increasing the efficiency of our investments” and is developing custom silicon. broadcom While making a “huge” investment, AMD Chips that complement new ones Nvidia This is a system that we are also deploying. ”
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Meta’s chief financial officer Susan Lee told analysts that the company needs to spend heavily on AI to “meet our infrastructure needs and ensure we maximize our strategic flexibility over the next few years.” The company also needs to ensure it has enough computing resources to train more AI models, build more products and propel its AI agents to consumers and businesses around the world, Lee said.
He added that Meta’s recent “multi-year cloud deals and our infrastructure purchase agreements” contributed to the $107 billion jump in contract value in the quarter.
Still, investors are waiting for new revenue streams to emerge after Mr. Zuckerberg spent the past 10 months overhauling the company’s AI strategy and bringing in high-priced talent. Earlier this month, Meta debuted Muse Spark as its first proprietary underlying model.
Meanwhile, Alphabet is making bets on things like its own chips, called tensor processing units (TPUs), which are increasingly competing with Nvidia’s graphics processing units (GPUs).
CEO Sundar Pichai mentioned the momentum in the semiconductor business multiple times during Wednesday’s conference call.
“There is tremendous demand for both AI solutions and AI infrastructure, including tremendous interest not only in TPUs but also in our GPU products,” he said.
Attention: Meta stock decline
