1 hyperscaler megacap down, 3 to go. Alphabet raises the stakes on AI spending

Breaking news from the markets: One down, three to go. Alphabet kicked off Big Tech earnings this week — telling Wall Street it plans to spend even more than previously expected on artificial intelligence. Now, the question is whether fellow Club names Amazon , Meta Platforms, and Microsoft will follow suit when they report next week.

"Capex trends are going to be the number one focus," Club portfolio director Jeff Marks said Friday during the Morning Meeting . That's because investors are no longer giving companies a free ride on spiraling capital expenditures, increasingly demanding monetization of all their infrastructure investments — or at least visibility towards monetization. (We explored this "AI rationalization" concept in a recent Club Check-In video .

Economic Details

) It's also the reason why hyperscaler stock prices have hit the skids in recent weeks. On one hand, they know they have to keep spending to keep up. On the other hand, hiking capex puts pressure on their ability to generate free cash flow (FCF), a critical measure of companies' financial well-being.

"They are spending because they see the demand and they don't want customers to go elsewhere," Jeff said. "But you can't ignore what it's done to free cash flow, either. " GOOGL YTD mountain Alphabet YTD Alphabet tried to thread that needle Wednesday evening when it raised its 2026 capital expenditure forecast by $15 billion at the midpoint to a range of $190 billion to $205 billion and reiterated that spending will increase further in fiscal 2027.

The heavier investment pushed second-quarter FCF into negative territory, with outflows of $5. It was the first negative quarterly reading in the company's history. The capex guidance overshadowed an otherwise impressive quarter — especially the 82% year-over-year surge in Google Cloud revenue.

Analyst Views

Even with strong cloud growth, Jim Cramer said he was not comfortable with the level of capex that the Google parent announced — wrestling with the increasingly expensive price tag attached to that growth. Since announcing plans to sell $85 billion worth of stock to offset spending, Alphabet has been trending lower. On Thursday, the day after earnings, the stock fell 7% on Thursday, following back-to-back losses.

The stock rose modestly Monday and Friday, but was tracking to become our third-worst performing stock of the week, down almost 8% over the past five days. Shares of Meta and Amazon were not much better this week, sliding nearly 7% and 6%, respectively. Microsoft stock was losing more than 2% week to date.

Meta and Microsoft report earnings Wednesday evening, with Amazon out after Thursday's closing bell. Among the three, Meta may be the one to watch most closely. META YTD mountain Meta Platforms YTD The Facebook and Instagram company has already been ramping up spending to build the enormous computing infrastructure needed to support its AI ambitions.

Financial markets are tracking the development closely as investors assess the likely impact.