This week's results from Alphabet, Microsoft and Amazon arrive at an awkward moment for the artificial intelligence trade. Investors who rewarded heavy spending for much of the past two years are now asking harder questions about returns, cash flow and debt.
The shift was visible last week. Meta Platforms reported third-quarter revenue of $64.6bn, up 26 per cent and ahead of forecasts, but raised the bottom of its full-year capital spending guidance to $135bn, keeping the top at $145bn, and reported negative free cash flow of $2.12bn for the quarter. Its shares fell about 7 per cent on Thursday, 22 October.
Signs of strain
Other signals added to the unease. Tesla cut its full-year capital spending guidance by 20 per cent, according to Kyle Rodda of Capital.com, a move some analysts read as a sign the investment boom may be peaking. Bloom Energy fell sharply despite beating forecasts, on concerns about cash flow and spending. In the bond market, the cost of insuring Meta's debt against default reportedly reached a record.
What to watch
Alphabet and Microsoft report after the US market close on Wednesday, 28 October, the same day as the Federal Reserve's rate decision. Amazon follows on Thursday. Investors will focus on three things: capital spending guidance for next year, growth in cloud revenue, and whether AI-related revenue is growing fast enough to justify the outlay.
Strong cloud growth could ease concerns. Spending guidance that rises again without a matching revenue story could extend last week's sell-off, at a time when ten-year US Treasury yields near 5 per cent are already raising the bar for long-dated growth investments.
