Meta, Alphabet, Amazon Q3 Earnings: AI Revenue Surges but Free Cash Flow Turns Negative Across the Board

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Demand Soars While Monetization "Lags Behind"

Alphabet's third-quarter financial report shows that Google Cloud revenue grew 103% year-over-year to $30.7 billion, operating profit more than tripled, and cloud business backlog reached as high as $561 billion, of which more than 55% is expected to be recognized as revenue within the next 24 months. Amazon AWS revenue grew 39% year-over-year to $46 billion, the fastest growth rate in nearly five years, with backlog of approximately $578 billion, achieving triple-digit year-over-year growth. Samsung Electronics, leveraging the volume ramp of HBM4 memory chips, set a historical record with quarterly consolidated operating profit of 107.4 trillion Korean won, becoming the world's first tech company to exceed 100 trillion Korean won in single-quarter operating profit.

However, the acceleration of revenue growth did not offset the market's scrutiny of profit quality and cash recovery cycles.

After Alphabet released its financial report, its stock price plunged more than 12%, the largest single-day drop since its listing. Although cloud business performance far exceeded expectations, core search advertising revenue growth slowed to 12%, and management acknowledged that the monetization efficiency of AI Mode is temporarily lower than that of traditional search. Deutsche Bank analysts stated bluntly in a research report that these results "reignited questions about the returns on AI spending." Samsung Electronics' stock price fell more than 4% after the financial report, as investors were disappointed by the chip division's operating profit coming in below expectations and the lack of details in the shareholder return plan. In fact, Samsung Electronics' stock price has fallen more than 30% from its June high.

It is evident that demand is real, but the market is no longer willing to unconditionally pay for the narrative that "it will be very profitable in the future."

The most glaring numbers in this quarter's financial reports are not on the income statement, but on the cash flow statement. Amazon, Alphabet, and Meta rarely all recorded negative free cash flow in the same quarter, with net outflows of approximately $42.4 billion, $9.1 billion, and $2.1 billion, respectively.

All three giants have placed heavy bets on AI infrastructure. Amazon's single-quarter capital expenditure soared to $77.26 billion, and free cash flow over the past 12 months turned from an inflow of $14.8 billion in the same period last year to an outflow of $42.4 billion. CEO Andy Jassy said on the earnings call that AI infrastructure demand "is already visible through 2028," and expects AWS to maintain growth of more than 40% in 2027 and 2028, with a long-term target of trillion-dollar annual revenue.

Alphabet's third-quarter capital expenditure was $51.4 billion, with the full-year guidance maintained at $195 billion to $205 billion, and management forewarned a "significant increase" in 2027. Meta narrowed its full-year capital expenditure guidance to $135 billion to $145 billion and disclosed a financing plan totaling approximately $95 billion to support its "personal superintelligence" vision.

For a long time, Meta relied on strong operating cash flow to absorb AI investment on its own. Now, however, it has disclosed a financing plan totaling approximately $95 billion to support its "personal superintelligence" vision, having to turn to capital markets for fundraising. Analysts pointed out accordingly that Meta "no longer funds the AI race solely with its own profits."

S&P Global Ratings research further predicts that the six hyperscale companies it covers will post negative free operating cash flow in 2026 and 2027, with cash flow expected to recover only by 2029. This means that the financing structure of this computing power race is shifting from "driven by internal cash flow" to "driven by external financing," and this shift is far more sensitive to the interest rate environment and investor risk appetite than before—once financing costs rise or risk appetite contracts, the giants' lofty capital expenditure plans will bear the brunt.

The Temperature Gap Between Chips and Computing Power

Intel's third-quarter Data Center and AI segment revenue grew 78% year-over-year to $7.3 billion, the strongest data center revenue growth in 15 years. CEO Lip-Bu Tan said that the supply priority for Xeon server processors is the current "top priority." Samsung Electronics explicitly expects that AI infrastructure capital expenditure in 2027 will reach "historic levels," and AI-driven demand will "far exceed industry supply." Upstream chip and memory manufacturers are still enjoying the direct benefits of hyperscale companies' expenditure expansion.

But Intel's overall situation reveals another layer of reality. Despite the standout data center business, its client computing business revenue fell 5%, and the midpoint of its fourth-quarter revenue guidance was below analysts' expectations, sending its stock price plunging more than 23% after the financial report. The weakness of the PC market coexisting with the boom in AI server demand shows that AI investment's pull on the overall economy is not evenly distributed.

More alarming is that the "temperature gap" in hyperscale companies' capital expenditure has begun to emerge: Microsoft lowered its full-year capital expenditure guidance from $175 billion to $170 billion, attributing it to construction delays. Barclays' head of Asia macro strategy Mitul Kotecha commented quite precisely: "The market is becoming more selective about the returns on AI investment."

This earnings season reveals a shift in the valuation logic of AI investment. Investors are forced to confront a question previously obscured by the growth narrative: after depreciation begins to erode profits, financing costs are no longer negligible, and capacity ramp-ups encounter physical resource constraints, when and in what manner will AI infrastructure investment translate into output?

For a market that has already bet trillions of dollars on this narrative, next quarter's cash flow data may be more important than any model release.

(Source: China Fund News) Middle of the body Embedded advertisement