AI build-out hits snag as Google and Microsoft put off raising capex forecasts
Microsoft and Alphabet both reported capital expenditures that fell short of estimates, adding to concern over the cost of the AI build-out.
TL;DR
- Microsoft and Alphabet's capital expenditure forecasts fell short of analyst estimates.
- Delays from third-party GPU providers are pushing back some AI capacity availability to the first half of 2027.
- Shares of neoclouds CoreWeave, Nebius, IREN, and Oracle dropped following the earnings reports.
- Alphabet reported negative free cash flow of over $9 billion.
- Meta raised its full-year capex forecast, but also reported negative free cash flow.
- Emerging neoclouds face challenges securing billions in outside capital due to rising interest rates and debt concerns.
- Gartner predicts 80% of neocloud companies will be absorbed or cease operations by 2030.
- Microsoft's CFO expects capital spending to accelerate in early 2027 due to component costs and delayed deliveries.
- Hyperscaler capex is projected to exceed $1 trillion next year and continue rising.
- Microsoft's Azure cloud business saw 48% sales growth, driving a positive reaction to its earnings report.