Alphabet, Tesla and the entire Big Tech sector face emergency... Cash flow crisis due to AI investment

▲ Magnificent 7, US tech stocks, bear market/AI generated image

A warning has emerged that the AI investment backlash that hit Alphabet (GOOGL·GOOG) and Tesla (TSLA) could spread to Microsoft (MSFT), Meta Platforms (META), and Amazon (AMZN).

According to the US economic media MarketWatch on July 28 (local time), Wall Street is closely scrutinizing free cash flow and capital expenditures in Big Tech earnings. Microsoft, Meta Platforms, and Amazon are scheduled to announce their earnings this week. Apple (AAPL) showed a difference from other Big Tech companies by relatively curbing its capital expenditures.

Alphabet's capital expenditures in the second quarter doubled compared to the same period last year. Its free cash flow turned negative. Tesla's stock price also fell after its quarterly earnings announcement due to concerns about increased capital expenditures and deteriorating cash flow.

Market attention has shifted to Microsoft, Meta, and Amazon. These three companies are also rapidly increasing their investments in AI data centers and infrastructure. While capital expenditures have increased, free cash flow has shown a weakening trend.

Warning signs have also been detected in the bond market. Credit default swap spreads for major technology companies have widened. Analysts suggest that investors have begun to re-evaluate Big Tech's funding burden and credit risk.

The burden of AI investment could spread to the semiconductor supply chain. Revenue for Nvidia (NVDA), Broadcom (AVGO), and AMD is closely linked to the capital expenditures of large technology companies. The recovery of free cash flow has emerged as a key variable for Big Tech and AI semiconductor stocks.

[Key Summary of the Article]

-Alphabet and Tesla experienced stock price shocks after increased AI capital expenditures and deteriorating free cash flow.

-Microsoft, Meta, and Amazon are also expected to be evaluated for their AI investment burden.

-A slowdown in Big Tech spending could also affect Nvidia, Broadcom, and AMD.

*Disclaimer: This article is for investment reference only, and we are not responsible for any investment losses based on it. The content should be interpreted for informational purposes only.*