Alphabet Gains Investor Confidence as Strong Cash Flow Funds AI Push

This article first appeared on GuruFocus.

Alphabet Inc. (GOOGL, Financials) shares climbed 7.3% after the company showed it could fund heavy AI investments without straining its finances. The company spent nearly $24 billion on new infrastructure last quarter less than half the cash it generated from operations.

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Rivals Microsoft and Meta also boosted spending to expand data centers and AI capacity, but their higher cash outlays raised investor concerns. Microsoft used 77.5% of its operating cash flow, and Meta 64.6%, to fund their builds, sending both stocks lower.

Analysts said Alphabet's balance between investment and cash generation stood out. Having capital spending as a lower percentage of cash flow gives investors more comfort, said Edward Jones analyst Dave Heger.

Meta's Mark Zuckerberg said the company could absorb some near-term losses if AI spending runs ahead of demand. But investors remain cautious until companies show clearer links between AI investments and revenue growth.

Amazon's upcoming earnings report will offer another look at how major cloud and AI players are managing the cost of keeping up with soaring demand.

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