Investors trust Google more than Meta when comes to spending on AI
Sundar Pichai is the CEO of Alphabet.
Source: Alphabet
Meta And Alphabet Both beat expectations in Wednesday’s earnings reports, and each posted their fastest growth in years. They also lifted their guidance on capital spending for the year, telling investors they would continue pouring money into AI infrastructure.
But despite the similarly optimistic results, Wall Street had very different reactions. While Alphabet shares gained 7% in long-term trading, Meta’s shares fell 7%.
This continues a theme that has hindered the Meta throughout much of the prolific AI boom. Alphabet and other hyperscalers Microsoft And Amazon They all have massive cloud infrastructure businesses, giving them the ability to monetize their AI investments, while Meta has no such offering.
This makes it difficult for Meta CEO Mark Zuckerberg to sell AI spending because the return on investment has to show up elsewhere, and that mostly means increased ad revenue and profitability.
All four tech giants reported their quarterly results on Wednesday. Alphabet, Microsoft and Amazon showed stronger-than-expected growth in their cloud divisions. Meta’s shares are only one of four traded.
Looking at earnings reports, Alphabet’s stock price rose 118% last year, dwarfing Meta’s 21% gain. Amazon is up 40% and Microsoft is up nearly 8%.
Analysts at DA Davidson maintained their neutral rating following the results, saying in a report: “Google is outperforming its peers, which is evident at the current valuation.” he wrote.
Investment spending is generally spectacular and growing; This is partly because companies are having to spend more on memory, which is facing a global shortage as demand for AI soars.
Alphabet on Wednesday raised its 2026 capital spending forecast range from $175 billion to $185 billion, from $180 billion to $190 billion. CFO Anat Ashkenazi said the company’s 2027 capex is expected to “increase significantly” over this year’s figure.
The spending forecast was coupled with revenue growth of 20%, the fastest in any quarter since 2022. Cloud revenue rose 63%, and Alphabet said it had a backlog of $460 billion, nearly doubling from last quarter, driven by demand for AI infrastructure.
defending spending
Similar to Meta raising its capex forecast in October, Zuckerberg spent time on the earnings call defending the company’s higher AI spending, citing it as essential for future growth while also strengthening its core online advertising business.
“The trend over the last few years is clearly that we’re seeing an increasing return on the amount that we can increase people’s engagement and value for advertisers,” Zuckerberg said. he said. “This encourages us to continue to invest heavily in things that we hope will provide increasing value for years to come.”
On the revenue side, growth is more impressive than at Google. Sales rose 33% from the previous year, marking the strongest period of expansion since 2021.
Zuckerberg said the company is “very focused on improving the efficiency of our investments” and developing custom silicon. broadcom when investing a “significant amount” AMD Chips to complement the new Nvidia “And the systems we put into use.”
Arda Küçükkaya | Anatolia | Getty Images
Meta CFO Susan Li told analysts the company needs to spend big on AI to “meet our infrastructure needs and make sure we maximize our strategic flexibility in the coming years.” Li said the company also needs to ensure it has enough computing resources to train more AI models, build more products and help AI agents support consumers and businesses around the world.
He added that Meta’s recent “multi-year cloud deals and infrastructure purchase agreements” contributed to a $107 billion increase in contract commitments during the quarter.
Still, investors expect new revenue streams to begin bearing fruit after Zuckerberg spent the past 10 months overhauling the company’s AI strategy and hiring high-priced talent. Earlier this month, Meta released the Muse Spark as its first proprietary base model.
Alphabet, meanwhile, is cashing in on its bets, including on home-grown chips called tensor processing units (TPUs) that increasingly compete with Nvidia’s graphics processing units (GPUs).
CEO Sundar Pichai touched on the momentum on the chip side of the business several times during Wednesday’s call.
“There is tremendous demand for both AI solutions and AI infrastructure, including significant interest in our TPUs as well as our GPU offerings,” he said.
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