Hyperscaler earnings trigger market sell-off despite strong AI cloud growth

Alphabet shares fell 12-13% overnight, erasing 500 billion dollars in market value, despite revenue growth of 25% and operating margin rising to 31.8%. Google Cloud revenue doubled year-over-year to a 120 billion dollar run rate, with 11 billion dollars in quarterly operating income and a 36% operating margin. Search revenue growth slowed to 12% from 19% in the prior quarter, attributed to monetization challenges from AI Overviews. Alphabet plans 200 billion dollars in capital expenditure for the year, resulting in negative free cash flow. Microsoft revenue grew 19%, with Azure reaching a 130 billion dollar run rate and growing 48% year-over-year; the company maintains positive free cash flow. Amazon revenue growth slowed to 12% due to Prime Day timing shifts, but AWS grew 39.3% to a 200 billion dollar run rate with a 39% operating margin. Amazon reported 47 billion dollars in negative free cash flow over the last twelve months due to 215 billion dollars in cloud spending. Oracle shares rose 12% after forecasting 30 billion dollars in positive cash flow for 2029. Analysts argue the market is punishing hyperscalers for high capital expenditure despite strong AI demand, while noting that construction and energy constraints, not chip supply, are the current bottlenecks. The analyst argues that hyperscalers are correctly prioritizing long-term AI dominance over short-term shareholder value, noting that the risk of not investing is greater than the risk of over-investing, as these companies are not existentially threatened by their capital expenditure.