$GOOG Just Changed the AI Investment Story
If you're wondering why $Alphabet(GOOG)$ is down today, I wrote about exactly this moment a week ago.
The market expected a delicate dance from Alphabet that involved a massive increase in capex AND the company remaining free cash flow positive (charts below).
We got one (capex growth). Not the other (FCF).
If operating cash flow doesn't fund the capex of the biggest, most successful business in the world, the entire AI buildout will be dependent on debt. And that's a very different risk proposition than funding it with cash flows.
So, the market takes a "risk off" move even with a company like Alphabet.
The next question is who blinks first? Or put another way, who cuts capex spending and gets rewarded by the market?
Some manager (maybe Zuck, maybe Larry, maybe Satya, maybe Jassy) will say "enough," and their stock will jump 10%.
Others will follow.
The AI story has been about more capex being good without great evidence that the pot of gold (AGI, ROI) exists at the end of the rainbow. But if the market rewards more spending...YOU SPEND MORE!!
If the market punishes spending more, there BETTER BE a pot of gold, or everyone is getting fired.
That's the psychology of the day and the next ~6 months at least. Bottlenecks are a trend of the past. Next, tell me who is going to turn inflect their FCF trend from negative to positive. I think that's what the market wants to see.
Whoda thunk making money on several trillion in capex would eventually matter? But here we are.
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