AI Revenue vs. Expenditure: Alphabet Surges as Meta and Microsoft Face Spending Backlash

The major U.S. indices closed higher on Thursday, led by the Dow Jones Industrial Average, as the 'Magnificent Seven' ceased moving in lockstep. The session highlighted a growing divide in investor sentiment regarding artificial intelligence, with a clear preference for realized earnings over projected capital expenditures. Alphabet emerged as the day's primary winner, with shares climbing 9.6% following a 63% revenue surge in its Google Cloud division. The company reported a massive backlog of unfilled cloud orders totaling $462 billion, nearly double the previous quarter's figure, though growth remains constrained by hardware and power availability. In contrast, Meta Platforms saw its stock plummet 9.2% despite beating Wall Street estimates. Investors reacted negatively to the company's plan to increase AI infrastructure spending to $135 billion this year, up from $127 billion three months ago. Microsoft faced a similar fate, dropping 5.7% as management detailed its own AI investment roadmap, while Amazon dipped 1.2% despite beating consensus targets. Nvidia fell 4.3%, pressured by Alphabet's disclosure that it is shipping its own AI accelerators to select customers, signaling increased competition in the chip market. Meanwhile, Caterpillar benefited from the AI boom, seeing increased demand for heavy machinery used in data center construction. On the macro front, oil prices stabilized as Iranian leaders signaled a desire for regional calm, despite the continued blockage of the Strait of Hormuz. This provided a brief reprieve from the volatility that has plagued energy markets.