Why Alphabet stock went up this week (and why Meta shares did not)

Alphabet (NASDAQ:GOOG) was a big stock market winner this week after the companyâs Q3 earnings report on Wednesday (29 October). But not all is well in Silicon Valley.

By contrast, Meta Platforms (NASDAQ:META) saw its share price go the opposite way. And this tells investors something very important about the outlook for artificial intelligence (AI) stocks.

Still growing, still spending

Alphabet reported revenue growth of 16% in Q3. But the real highlight was its Google Cloud division, where sales came in 34% higher than the previous year.

As a result, the firm increased its capital expenditure forecasts from $85bn to between $91bn and $93bn for the full year. The stock market liked this very much, sending the share price up.

Meta reported sales growth of 26%, driven by continued strength in its advertising business. The company also announced a slight increase in its AI spend going forward.

The stock market didnât like this at all, sending the stock down 11%. So here we have two companies growing strongly and increasing their AI spend â so whatâs the difference?

Demand

At the moment, Alphabet is spending in order to be able to meet current demand from customers. Meta, on the other hand, is not â and thatâs the big difference between the two.

Googleâs Cloud business involves selling computing power to third parties. And the demand for this is so strong that the firm needs to build out additional data centres to meet this.

Meta, on the other hand, is in a different position. The companyâs large-scale AI infrastructure is purely for its own use in building and improving its own products.

That makes its AI investments riskier. And CEO Mark Zuckerberg confirmed that Meta is building more capacity than it currently has use for in anticipation of future needs.

AI bubble?

A lot of investors are wary of an AI bubble at the moment. In that context, the difference between Alphabet and Meta is huge, which explains why the stocks went different ways.Â

Itâs one thing to be building infrastructure where demand is known. But itâs quite another to be putting cash out in the expectation that a use for it will appear at some point in the future.

Metaâs strategy might well turn out to be the right one. But thatâs not guaranteed and this kind of spending is the kind of thing investors concerned about a bubble are looking for.

Equally, there is a chance that the demand Google is seeing subsides and its investments donât work out. Right now, though, its capital expenditures look much less speculative.

Ups and downs

Sometimes the stock market does things that don’t make any sense. Other times, there’s an explanation to be found for investors who are willing to look for it.

Meta is one of the major companies that is making genuine progress with AI. Its AI programmes have generated real improvements to its social media platforms.

Despite this, its spending looks much riskier than Alphabetâs. I think investors can justifiably consider buying either stock, but the difference between them in terms of AI is huge.

The post Why Alphabet stock went up this week (and why Meta shares did not) appeared first on The Motley Fool UK.

Should you invest Â£1,000 in Alphabet right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Alphabet made the list?

See The Six Stocks

More reading

Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has recommended Alphabet and Meta Platforms. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.