In the latest earnings reports, Alphabet reported a staggering negative free cash flow of $9.07 billion, significantly worse than the $2.70 billion analysts had anticipated. This disappointing figure contributed to a sharp decline in its share price, which could mark its worst post-earnings reaction since going public in 2004.
In contrast, Microsoft reported $45.2 billion in capital expenditures, a 30% increase year-over-year, although it fell short of analyst expectations of $50.67 billion. Despite a 27% drop in free cash flow to $18.63 billion, Microsoft’s results were perceived more favorably, leading to a rise in its stock price.
The earnings reports come amid heightened scrutiny of AI spending, with Alphabet's search advertising revenue growing 12% to $63.35 billion but still missing expectations. Philipp Schindler, Alphabet's chief business officer, noted that lower monetization in its AI Mode impacted search revenue.
Analysts suggest that Alphabet is struggling with its AI strategy, particularly with its Gemini chatbot, which has not kept pace with competitors like OpenAI's ChatGPT. This situation reflects a broader challenge for Google as it navigates the balance between protecting its core business and adapting to disruptive innovations in the AI space