Market reactions were mixed after the latest quarterly earnings from US tech giants, raising questions about when heavy AI spending will start to pay off. Alphabet, Meta and Apple saw share price declines of roughly 7%, 8% and 7% respectively, largely due to high capital expenditure and supply chain concerns. Microsoft and Amazon, by contrast, saw their shares surge by about 15% on the next trading day.
Alphabet raised its spending forecast to as high as $205 billion this year. Tesla's share price fell more than 14% after its results, with CEO Elon Musk calling it a “massive capex year”. Apple's share price fell 7% following a supply chain warning from outgoing chief executive Tim Cook, who said: “We're seeing some very significant constraints currently with limited flexibility in the supply chain to remedy it.”
Goldman Sachs has estimated that AI capex is around $765 billion currently, expected to grow to around $1.2 trillion next year. The market is concerned that this spending is not yet converting into near-term cash flow. Alphabet reported its first ever negative cash flow, while Meta posted a 91% year-on-year drop in free cash flow. Amazon also reported negative free cash flow of $7.6 billion.
Chris Elliott, portfolio manager of the Evenlode Global Equity fund, said Amazon's CEO Andy Jassey was clear-eyed on the break-even point for investment: “It takes a little less than three years for the company to recoup the initial investment of buildings and chips.” Nick Saunders, chief executive of Webull UK, said questions were being raised over Meta and Alphabet's ability to continue investing at current levels, and noted that reducing AI spend could be seen as an admission of failure.