Here are the takeaways from today’s Morning Brief, which you can register to receive every morning in your mailbox accompanied by:
Optimism about AI’s potential to transform the tech industry has given rise to a desire to increase investment. Look no further than Nvidia’s (NVDA) earnings statement to see just how frenetic this pace has been.
The stock prices of the market’s largest technology companies making these investments also reveal that investors have been generally receptive to the idea.
And how management teams convinced investors to buy into the idea that spending billions to fund AI opportunities could still be elusive It’s simple: they are also paid.
Take Alphabet (GOOG, GOOGL), for example.
In 2023, the company spent just over $32 billion on capital expenditures, which it outlines in its report. Annual Report as expenditures that “primarily reflected investments in technical infrastructure”. In 2022, investment spending totalized $31.5 billion.
Typically, that’s money spent on chips, servers, and raw computing power to run what we think of as the company’s suite of services: search, YouTube, Gmail, etc.
As AI has outpaced any other strategic investment Alphabet might have considered for itself, those expenses have increased significantly.
In the first quarter, the company’s capital expenditures reached $12 billion. On a call with investors last week“We expect quarterly investments throughout the year to be approximately equal to or higher than the first quarter level,” said Chief Financial Officer Ruth Porat.
Porat cautioned that such spending may be uneven. But that annualized spending rate — $48 billion — is about 50% higher than what the company spent in each of the last two years.
To attract investors to this approach, the company offers a premium.
Alphabet launched a quarterly dividend of $0.20 per share, the first regular dividend in the company’s history. Its stock repurchase authorization was also increased by $70 billion, on top of the $20 billion available under its existing program.
At current share counts, this dividend will cost Alphabet just under $10 billion a year in cash, paid to shareholders. In the first quarter, Alphabet repurchased $16.1 billion of its own shares.
Increasing share repurchases will slightly reduce dividend withdrawal expenses as repurchased shares are retired, but if the company maintains roughly its current pace of repurchases, quarterly shareholder returns should be between 18 and 19 billion dollars. On an annual basis, these figures are expected to be closer to $75 billion.
While Alphabet’s annual capital spending is expected to increase by at least $16 billion in 2024, investors are more than compensating.
Now, as Meta (META) learned last week, this support can be fickle.
Its stock fell more than 10% after…
