1 hyperscaler megacap down, 3 to go. Alphabet raises the stakes on AI spending
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- Alphabet raised its 2026 capital expenditure forecast by $15 billion at the midpoint to a $190-205 billion range and reiterated spending will increase further in fiscal 2027, pushing Q2 free cash flow to negative $5.8 billion — the first negative quarterly reading in the company's history.
- Google Cloud revenue surged 82% year-over-year, but the capex guidance overshadowed an "otherwise impressive quarter"; Jim Cramer said he was not comfortable with the level of capex Alphabet announced.
- Alphabet stock fell 7% the day after earnings (tracking down nearly 8% over five days) after the company unveiled plans to sell $85 billion worth of stock to offset AI infrastructure spending.
- Meta raised its 2026 capital spending guidance last quarter to between $125-145 billion (a $10 billion midpoint increase to $135 billion), citing higher costs for memory, chips, and data center components — shares plunged 9% after that report, and the company is now preparing a public cloud business to monetize excess computing capacity.
- Amazon left its 2026 capex forecast unchanged at around $200 billion and is projected to have negative free cash flow this year, prompting it to tap the corporate bond market to blunt the capex impact.
- Microsoft laid out roughly $190 billion in expected capital spending for calendar 2026 in April; free cash flow has come under pressure and the stock is down 20% YTD, making it one of the worst-performing megacap tech names.
- Club portfolio director Jeff Marks said "capex trends are going to be the number one focus," noting investors are no longer giving companies "a free ride on spiraling capital expenditures" and increasingly demand monetization or visibility toward monetization.
Why it matters: Alphabet's first-ever negative quarterly free cash flow of $5.8 billion on a raised $190-205 billion 2026 capex guide resets the bar for Meta, Amazon, and Microsoft reporting next week; with each hyperscaler committing $125-200+ billion in 2026 capex and investors punishing stocks that lack clear monetization visibility (Alphabet down ~8% in five days, Microsoft down 20% YTD), spending is no longer tolerated as a faith-based bet on AI demand.
