Investors still trust Google more than Meta when it comes to spending their money on AI

In a recent earnings report, both Meta and Alphabet exceeded analysts' expectations, showcasing significant growth rates not seen in years. However, the reactions from investors differed dramatically. While Alphabet's shares surged by 7% in after-hours trading, Meta's stock plummeted by 7%, highlighting a growing trend that has troubled Meta amid the generative AI surge. Investors are increasingly drawn to Alphabet, Microsoft, and Amazon, all of which have robust cloud infrastructure businesses that facilitate their AI investments. In contrast, Meta lacks such a platform, complicating CEO Mark Zuckerberg's efforts to justify the company's heavy spending on AI, as its returns largely depend on increasing ad revenue and profitability. All four tech giants released their quarterly results on the same day, with Alphabet, Microsoft, and Amazon reporting stronger-than-anticipated growth in their cloud services. Unfortunately for Meta, its stock is the only one among the group that is currently trading lower. Over the past year, Alphabet's stock has soared by 118%, far surpassing Meta's modest 21% growth, while Amazon and Microsoft saw increases of 40% and 8%, respectively. Analysts at D.A. Davidson noted that Google's performance is notably superior to its competitors, which is reflected in its current market valuation. The capital expenditure (capex) figures released by all companies are impressive, driven in part by a global shortage of memory due to rising AI demand. Alphabet has raised its 2026 capex forecast to between $180 billion and $190 billion, up from an earlier estimate of $175 billion to $185 billion, with CFO Anat Ashkenazi indicating that spending will significantly rise in 2027. This strategic spending comes alongside a remarkable 20% revenue growth, the highest for any quarter since 2022. Notably, cloud revenue skyrocketed by 63%, and Alphabet reported a staggering $460 billion backlog in demand for AI infrastructure, nearly double that of the previous quarter. Meta has also adjusted its capex guidance for the year, now projecting expenditures between $125 billion and $145 billion, up from $115 billion to $135 billion. Zuckerberg defended the company's substantial AI investments during the earnings call, asserting that this spending is crucial for future growth and enhancing their core online advertising business. Despite the challenges, Meta's revenue growth remains impressive, with a 33% increase year-over-year, marking the fastest growth since 2021. Zuckerberg emphasized the company's commitment to improving investment efficiency and highlighted their collaboration with Broadcom on custom silicon, as well as significant investments in AMD chips to complement their new Nvidia systems. Meta CFO Susan Li explained that substantial spending in AI is necessary to meet infrastructure needs and maintain strategic flexibility. She noted that recent multi-year cloud deals and infrastructure agreements contributed to a $107 billion increase in contractual commitments during the quarter. However, investors are eager to see new revenue streams develop after Zuckerberg's extensive overhaul of the company's AI strategy over the past ten months, including the recent launch of their proprietary foundation model, Muse Spark. Meanwhile, Alphabet continues to capitalize on its investments, particularly with its tensor processing units (TPUs), which increasingly compete with Nvidia's GPUs. CEO Sundar Pichai underscored the strong demand for AI solutions and infrastructure, as well as the growing interest in their GPU and TPU offerings during the earnings call.