Alphabet and Microsoft Show Secret to AI Investments: Rich Profits

Artificial intelligence development may be sucking up vast amounts of money from big tech—but hey, at least business is good! That’s the picture painted by earnings updates from both Alphabet and Microsoft on Thursday—echoing a similar state of play reported by Meta Platforms on Wednesday. All three companies reported strong operating profit growth for the March quarter—46% for Alphabet and 23% for Microsoft, neither as good as Meta’s 91% jump but solid nonetheless. All three are benefiting from cost cutting over the past year, combined with top-line expansion.

And that means they can afford the massive increase in spending on data centers and chips that AI development requires. (When it comes to justifying that spending, CEOs of all three companies use interchangeable corporate blather about “investing to take advantage of future opportunities.”) Incredibly, though, these companies are rich enough to cover those capex bills while they also buy back stock and, now, even pay a dividend. Alphabet on Thursday followed Meta’s lead last quarter in announcing that in June it would start paying a quarterly dividend—the first one will be 20 cents a share, translating to a quarterly payout of $2.5 billion. In the March quarter, Alphabet generated $28.8 billion in cash from its operations and spent $12 billion of that on capex, nearly double the amount a year earlier. It also bought back $15.7 billion worth of stock! When you’re spending at these levels, having more than $100 billion in cash reserves helps a lot.