Alphabet Surges 7%, Meta Plunges 9% as Markets Diverge on AI Spending Plans

Alphabet's stock surged more than 7% on Thursday, while Meta shares plunged 9%, as investors digested Wednesday's first-quarter earnings results, which included plans to up the ante on artificial intelligence spending. It is pacing to be Meta's worst day since October and Alphabet's best day since November. The diverging stock moves show that Wall Street isn't guaranteed to applaud every tech company's AI spending spree.

"The market was less united on what to make of the spending plans, with investors still trying to balance the scale of the AI opportunity against the cash required to chase it," Matt Britzman, an analyst at Hargreaves Lansdown, wrote in a Thursday research note. "But the bigger takeaway is that this cycle is nowhere near cooling."

Alphabet topped analysts' estimates for first-quarter revenue, helped by its booming Google Cloud business, which recorded a 63% increase in revenue from a year ago. Google CEO Sundar Pichai said cloud growth was driven by demand for its enterprise AI solutions. The company revised its capital expenditure forecast this year to between $180 billion and $190 billion, up from its previous estimate of $175 billion to $185 billion.

Meta surpassed Wall Street's expectations for earnings and revenue in the first quarter, though its daily active people, or DAP, figure was dragged down quarter over quarter by "internet disruptions in Iran." The company increased its capex plans for the year to a range of $125 billion and $145 billion, compared with its prior range of $115 billion to $135 billion, a move the company said "reflects our expectations for higher component pricing this year, and to a lesser extent, additional data center costs to support future year capacity."

Meta is shopping around a $20-25 billion dollar bond deal on Thursday as the cost to fund the AI buildout has continued to rise, people familiar with the matter told CNBC's Seema Mody. The sources asked not to be named in order to discuss a confidential matter. Both Goldman Sachs and Morgan Stanley are engaged in Meta's debt deal. It is Meta's second bond transaction in the span of seven months. Meta declined to comment to CNBC.

On a conference call with investors, Pichai said Alphabet was seeing "tremendous" demand for its AI tools and custom chips. AI is "lighting up every part of the business," he added. Meta executives looked to justify the company's hefty AI spending, saying it's necessary to "meet our infrastructure needs" and capture future growth, while bolstering the core online ad business.

Unlike Alphabet, Microsoft and Amazon, which all have massive cloud infrastructure businesses that enable them to turn their AI investments into revenue, Meta has no such offering, making it harder to prove it can deliver returns. Microsoft raised its capital spending forecast to $190 billion for all of 2026, with $25 billion of that figure reflecting higher component prices. Amazon held its previously announced capex budget for the year, which is expected to reach $200 billion, more than any of its megacap tech peers.

The concerns around Meta's AI spending caused JPMorgan analysts to downgrade the stock Thursday to neutral from overweight. Meta faces a "challenging path" to generating returns on its heavy capex forecast, especially as hyperscalers continue to "benefit from deep enterprise tech stack integrations, silicon supply & model diversity," the analysts wrote. "Overall, we look for greater clarity into the path to returns on AI spend beyond the core ad business, & believe building, iterating, scaling & monetizing new products & experiences will take time," JPMorgan analysts said.

— CNBC's Jennifer Elias and Jonathan Vanian contributed to this article.