Important points
CNBC’s Jim Cramer said Thursday that the market’s reaction to Microsoft and Alphabet’s latest earnings highlights a major shift in the way Wall Street assesses the enormous costs of the artificial intelligence boom. Investors who once rewarded tech giants for aggressively building out AI infrastructure are now prioritizing financial discipline and returns on those investments. Earlier this year, Microsoft’s relatively restrained spending raised concerns that it could fall behind competitors, but Alphabet’s spending on data centers and custom chips has paid off. But Cramer said Wednesday night’s corporate results show how investors’ priorities have changed dramatically. “I think Microsoft’s stock price is going to skyrocket from here with all of its discipline, but I don’t think Alphabet’s stock is going to go up,” the “Mad Money” host said. “Alphabet has too much baggage. It has no discipline. It doesn’t know what to do.” Cramer’s Charitable Trust, a portfolio managed by CNBC’s investment club, owns stock in both Alphabet and Microsoft. On Wednesday night, Microsoft beat revenue and earnings expectations, with revenue for its Azure cloud business up 48% year-over-year. Capital spending and finance leases of $45.2 billion also fell short of Wall Street expectations. Cramer praised Microsoft’s ability to deliver strong cloud growth while remaining free cash flow positive. He also highlighted the success of Copilot, an AI assistant for businesses, saying, “It started slowly, but it’s becoming a huge success.” “The combination of a shrewd CEO in Satya Nadella and a tough and insightful CFO in Amy Hood resulted in a quarter that separated Microsoft from the crowd,” Cramer said. “They’re running it like a business, not a science project,” he added. Meanwhile, Alphabet disappointed investors. Shares plunged in trading Thursday after Google’s parent company missed revenue and revenue expectations, with search and YouTube ad revenue both falling below expectations. Google Cloud’s revenue more than doubled, but the strength wasn’t enough to offset concerns about its core business. He argued that Alphabet’s huge AI investments are becoming harder to justify as cash generation deteriorates. The company expects capital spending to be between $195 billion and $205 billion this year, but free cash flow turned negative for the second consecutive quarter. He also warned that Alphabet’s remaining $27.6 billion in authorized stock sales could weigh on stock prices. “I don’t want to buy any more Alphabet,” Kramer said. “Today was the worst day in stock history, but we have to wait a little bit. Let’s let the analysts reduce the numbers, see where the stock is trading, and find the right multiple.” “Microsoft? It’s a buy here,” he concluded. Subscribe to CNBC Investing Club today to follow Jim Cramer’s every move in the markets. Questions about Cramer’s disclaimer? Call Cramer: 1-800-743-CNBC Want a deeper look into Cramer’s world? Punch him! Mad Money Twitter – Jim Cramer Twitter – Facebook – Instagram Have questions, comments, or suggestions about the Mad Money website? madcap@cnbc.com
