Alphabet’s plan to sell $80 billion in stock to fund its AI buildout isn’t all bad
Alphabet bulls battled the bearish band all day Tuesday, taking a glass-half-full view of the company’s plans to sell large chunks of shares to fund its AI development. The cloud and search giant announced late Monday that it plans to raise $80 billion through a stock offering, including a $10 billion investment from Berkshire Hathaway. This is the latest step in aggressive efforts by major tech companies to secure future funding for AI infrastructure. Alphabet said it plans to use the proceeds for “capital expenditures to scale AI infrastructure and global computing.” Selling stock to finance investments is traditionally frowned upon because it dilutes the stakes of existing investors. In addition, Alphabet aims to raise half of that capital through what’s called an at-the-money (ATM) strategy, in which a company gradually sells newly issued shares on the secondary market over time. All of this is not ideal for investors. “You can’t really move the stock because as soon as the stock starts improving, [more] We are out of stock. “This is part of the problem with the ATM program,” Jim Cramer said on Tuesday’s Morning Briefing. and the least preferred option: stock sales.” We have to recognize that there are a lot of companies raising cash. “This is generally not a good time to be buying stocks,” Jim said on CNBC on Tuesday. Jim arrived Tuesday morning surprised that the stock was “hanging in there,” suggesting the news must have a further negative impact on the shares. Goldman Sachs CEO David Solomon echoed that sentiment in an interview with CNBC at the Economic Club of New York on Tuesday. Alphabet shares say it’s “the biggest follow-up ever.” Solomon stressed: “That’s encouraging.” The CEO’s comments came as the stock recouped earlier losses. Goldman, JPMorgan Chase and Morgan Stanley were another cap hit for Goldman Sachs, which was named joint bookrunner for underwritten offerings. Anthropic and OpenAI are also expected to go public this year or early 2027. Alphabet is now raising capital to secure financing while it’s still available. “This is a move you’d typically expect to see from a startup, not an established company that’s expected to do around $215 billion in operating cash flow this fiscal year,” said Club analyst Zev Fima. “Perhaps they could use startup-like financing to support startup-like businesses.” All in all, Gemini looks like a startup within the broader Alphabet portfolio.” GOOGL YTD mountain Alphabet YTD While Alphabet YTD is slightly off Tuesday’s lows, shares of Google’s parent company are down nearly 4% to close at just under $362. The stock has nearly returned to the flat line at session highs, perhaps taking a break from the company’s stellar first-quarter earnings in late April, buoyed by strong demand for AI products. This has made Google Cloud’s backlog much lower. The company’s AI investments are boosting performance across the company, helping fund those expenses without taking on more debt and saving cash, as free cash flow is constrained by spending. The plan is part of the company’s goals to “fund its investments in a balanced manner while maintaining a healthy balance sheet,” Fima said. “They can buy back the stock and reverse the dilutive effect once the need for aggressive investment begins to wane,” he said. “If they don’t, we have bigger problems than the dilution from that, and the offer price is going to look pretty good given the hit we’re going to see in the stock.” It raises an important question: Why is one of the world’s largest cash-generating companies turning to capital markets for additional financing? The answer, ultimately, lies in the unprecedented scale now underway in the tech industry “The more you spend, the more you earn. That’s what keeps me inside [Alphabet]Jim said, referencing Nvidia CEO Jensen Huang’s recent comments at Computex about the need for high levels of AI-related capital spending. During Nvidia’s last earnings call in late May, Huang also said: “It’s very clear that computing is revenue, computing is profit. Wall Street firm Baird said on Monday that the Alphabet bid is “another indication of the scale of demand as well as the scale and urgency of building AI infrastructure.” More broadly, analysts estimate that AI-related debt and equity financing across hyperscalers, AI labs and neoclouds has exceeded $600 billion in the past two years; That’s a fraction of what it expects to become a $4 trillion investment cycle by 2030. The bottom line is that Alphabet doesn’t appear to be raising capital because of a cash crunch; rather, it suggests that management believes the AI opportunity is large enough and urgent enough to accelerate investments beyond what it can fund through operating cash flow alone. It also suggests that, given its track record, Alphabet is given the benefit of the doubt, at least for now. Charitable Trust is long GOOGL, NVDA. 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