Key Points
- CNBC’s Jim Cramer said Wall Street has shifted from rewarding aggressive AI spending to favoring companies that demonstrate financial discipline and returns on their investments.
- Cramer said Microsoft’s strong earnings and restrained spending make it a buy, while Alphabet’s disappointing results and mounting AI costs have left him cautious on the stock.
CNBC’s Jim Cramer said Thursday that the market’s reaction to Microsoft and Alphabet’s latest earnings underscores a major shift in how Wall Street evaluates the enormous costs of the artificial intelligence boom. Investors who once rewarded tech giants for aggressively building AI infrastructure are now prioritizing financial discipline and returns on those investments. Earlier this year, Microsoft’s relatively restrained spending raised concerns that it could fall behind competitors, while Alphabet was rewarded for pouring money into data centers and custom chips. But Cramer said the companies’ earnings Wednesday night showed how dramatically investors’ priorities have changed. “I think the stock of Microsoft, with all of its discipline, is now set to soar, while the stock of Alphabet won’t rally,” the ” Mad Money ” host said. “Too much baggage for Alphabet. No discipline. No sense of what it’s supposed to be doing.” Cramer’s Charitable Trust , the portfolio run by CNBC’s Investing Club, owns shares of both Alphabet and Microsoft. On Wednesday night, Microsoft topped earnings and revenue expectations , with revenue for its Azure cloud business growing 48% from a year earlier. Capital expenditures and finance leases of $45.2 billion also came in below Wall Street’s forecasts. Cramer praised Microsoft’s ability to deliver strong cloud growth while remaining free-cash-flow positive. He also highlighted the success of Copilot, its AI assistant for businesses, which “started slow, but it is becoming a screaming success.” “The combination of a shrewd CEO in Satya Nadella and a tight-fisted, canny CFO in Amy Hood resulted in a quarter that will have Microsoft pull away from the crowd,” Cramer said. “They run it like a business, not a science project,” he added. Alphabet, meanwhile, disappointed investors. Shares plunged in Thursday’s session after the Google parent missed earnings and revenue expectations , with both Search and YouTube ad revenue falling short of estimates. Although Google Cloud revenue more than doubled, that strength wasn’t enough to offset concerns about its core businesses. He argued that Alphabet’s massive AI investments have become harder to justify as its cash generation deteriorates. The company expects capital expenditures of $195 billion to $205 billion this year, while free cash flow turned negative for the second consecutive quarter. He also warned that Alphabet’s remaining $27.6 billion in authorized stock sales could weigh on shares. “I don’t want to buy more Alphabet,” Cramer said. “Today was the worst day the stock ever had, but I have to wait a little bit. Let the analysts cut numbers, see where it trades, find out the right multiple.” “Microsoft? It’s a buy right here,” he concluded. Sign up now for the CNBC Investing Club to follow Jim Cramer’s every move in the market. Disclaimer Questions for Cramer? Call Cramer: 1-800-743-CNBC Want to take a deep dive into Cramer’s world? Hit him up! Mad Money Twitter – Jim Cramer Twitter – Facebook – Instagram Questions, comments, suggestions for the “Mad Money” website? madcap@cnbc.com
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