Cash is king as investors draw new battle lines in AI spending boom
MSFT•Investors favored Microsoft and Oracle for showing paths to fund AI expansion, while Alphabet shares fell nearly 10% after hours as cash burn and slower-than-expected Search growth raised concerns. Microsoft generated $18.6 billion in free cash flow on $45.2 billion of infrastructure spending; Oracle expects positive cash flow in the second half of fiscal 2028.
1. Investors focus on cash
Microsoft shares rose more than 3% in after-hours trading on Wednesday, while Alphabet fell nearly 10%, as investors distinguished between companies generating cash from AI and those struggling to contain its costs. Oracle ended regular trading nearly 11% higher after it said it plans to cap external financing and expects positive cash flow in the second half of fiscal 2028.
2. Alphabet faces spending concerns
Google Search revenue grew 12% in the September quarter, below expectations for 14.7% growth, although CEO Sundar Pichai said queries were growing at their fastest pace in five years. Alphabet expects capital expenditure of as much as $205 billion this year, and CFO Anat Ashkenazi said spending will increase significantly in 2027. Google Cloud revenue more than doubled to $30.71 billion, but cash burn was $9.07 billion.
3. Microsoft reports cash generation
Microsoft generated $18.6 billion in free cash flow in its fiscal first quarter, nearly $10 billion above Wall Street expectations, while spending $45.2 billion to expand computing infrastructure. Azure revenue rose 48%, and Microsoft forecast faster-than-expected cloud growth for the current quarter. CEO Satya Nadella said more businesses were moving beyond AI experimentation and committing to long-term contracts.
