Mega-cap tech stocks diverge on AI monetization and valuation metrics
Major technology stocks show significant divergence in performance and valuation, with Alphabet falling 13% post-earnings while Apple remains the year's top performer. Analysts debate the best long-term bets, citing differences in cloud growth, cash flow, and AI infrastructure costs.
Mega-cap technology stocks are diverging sharply on AI monetization and valuation. Alphabet shares fell 13% after earnings, trading at $279 and 32% below all-time highs, with a P/E of 17. Cloud revenue grew 103% and backlog reached $561 billion, but search growth slowed and the company reported a negative cash flow of $9.1 billion for the second consecutive quarter. Amazon saw AWS grow 39% with a $578 billion backlog, yet the stock fell due to ad weakness and high capital expenditure; it remains the cheapest mega-cap by EV/EBITDA at 9.5x. Apple, the year's top performer at +27%, dropped 3-4% after hours as gross margins for the holiday quarter were guided to 45-46% due to memory chip costs, and service growth slowed to 9.8%. Meta reported 26% ad growth and a 15% workforce reduction, but plans to raise nearly $100 billion in equity for AI. Microsoft Azure grew 48% with a 50% operating margin and $18.6 billion free cash flow. Tesla, valued at 190x earnings, relies on a potential SpaceX merger, while Nvidia remains the most analyst-supported stock with 61% upside potential. Editors argue Alphabet is the best long-term bet due to diversified AI assets, while Amazon offers the best short-term potential due to recent overcorrection.