Alphabet raises capex guide and flags margin pressure
Are markets thinking too short-term?
Memory stocks bask in capex glow
Matt Britzman, senior equity analyst, Hargreaves Lansdown:
“Alphabet’s capex raise has reignited the debate over how much hyperscalers must spend before investors see a convincing return. In the near term, this will be a headwind to manage, as investment-driven depreciation weighs on margins and cash is eaten up by the buildout. We still think that capex forecasts are too low, so reactions like this may become part and parcel of the investment case for some time, but focusing solely on the near-term squeeze risks misses the bigger picture. These are exceptionally strong businesses, with deep pockets, rising operating cash flow, and the foundations to evolve from capital-light software giants into owners of the infrastructure that could define the next competitive era.
The hyperscaler investment case is now tied to one of the largest capital-allocation programmes in history, and there is little sign of the pace easing. That raises the execution bar and puts returns firmly under the microscope, but building valuable computing capacity looks like the right long-term strategy. As that infrastructure comes online, it should support faster growth, wider AI monetisation and stronger cash returns. For now, the not-so-silent winners are the hardware suppliers feeding the buildout, which benefit from the spending well before hyperscalers have fully monetised it. It’s little surprise to see memory names basking in the capex glow, with high-end memory now a mission-critical input and demand still outstripping available supply.”
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