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Amid growing observations that capital expenditure burdens are increasing for major U.S. hyperscalers, or massive data center operators, CNBC reported on the 28th local time that Amazon, Meta, and Microsoft (MS) could follow a similar path to Google parent Alphabet, whose shares plummeted following its earnings report last week.
The outlet pointed out that Alphabet's stock tumbled 7% on July 23, a day after it released its second-quarter earnings on July 22.
Alphabet upwardly revised its capital expenditure outlook for this year to between $195 billion and $205 billion, approximately 300 trillion won, and the analysis that this would increase the company's financial burden influenced the stock's sharp decline.
Major big tech companies, including Alphabet, which have been called "cash-generation machines," have continuously conducted massive share buybacks based on their enormous free cash flow.
This has served as a core driving force behind the continuous rise of major big tech stock prices.
However, Alphabet's second-quarter free cash flow turned negative for the first time since its 2004 IPO, and the suspension of share buybacks in the second quarter following the first quarter of this year heightened investors' concerns.
CNBC noted, "In recent quarters, investors have welcomed expanding capital expenditures as evidence of robust demand and growing revenues in maturing businesses. But if last week's earnings report serves as a guideline, Google is no longer receiving such benefits."
Experts express concern that Meta, Microsoft, and Amazon, which are set to release their earnings this week, could also see their stock prices follow a path similar to Alphabet if they upwardly revise their capital investment plans.
Mark Mahaney, an analyst at Evercore ISI, warned in a report last week that "Alphabet's expansion of capital expenditures increases the likelihood that similar moves will emerge from Amazon and Microsoft."
Previously, the four major hyperscalers—Amazon, Meta, Alphabet, and Microsoft—announced based on their first-quarter earnings reports that they plan to pour up to $725 billion, approximately 1,000 trillion won, into artificial intelligence (AI) infrastructure facilities this year alone.
Experts forecast that upward revisions to capital expenditures for this and next year are inevitable, particularly because hyperscalers are increasing facility investments in areas other than data centers, compounded by the impact of soaring memory prices.
Meta and Microsoft are scheduled to release their second-quarter earnings after the New York stock market closes on the 29th, and Amazon on the 30th.
Wall Street anticipates that incorporating second-quarter earnings will further increase the aggregated capital expenditure plans of the four major hyperscalers.
Meanwhile, some analyses suggest that the expansion of hyperscalers' capital expenditures should not be viewed solely in a negative light.
Financial investment firm Wedbush evaluated in a report last week regarding Alphabet's earnings that it indicates data center capacity remains constrained in the face of robust demand, stating, "This shows a willingness to spend."
Regarding expectations of potential capital investment expansion by Amazon, it also assessed that such capital expenditures are deemed worthwhile given the accelerating growth of Amazon Web Services (AWS) and Amazon's platform dominance.
Tiffany Wade, a fund manager at asset management firm Columbia Threadneedle, which holds shares in Alphabet, Amazon, and Microsoft, told CNBC, "I think patience is required for these stocks because we believe these companies will ultimately emerge as the AI winners in the mid-to-long term."
(Photo: Yonhap News)
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