Microsoft buy call gains traction as Cramer contrasts AI spending discipline with Alphabet

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Highlights

Microsoft beat earnings expectations with Azure revenue up 48% year-over-year and capital expenditures at $45.2 billion, below Wall Street forecasts.
Cramer highlights Copilot's rising business success and credits CEO Satya Nadella and CFO Amy Hood for balancing AI investment with financial discipline.
Alphabet missed earnings and revenue estimates, anticipates $195–$205 billion in capital expenditures for 2024, and reports negative free cash flow for a second consecutive quarter.

Earnings reaction highlights new AI spending test

As reported by CNBC, Jim Cramer said the market response to Microsoft and Alphabet's latest quarterly results shows investors are no longer rewarding aggressive AI infrastructure spending on its own.

He said Microsoft now stands out because it combines strong operating performance with tighter control over capital outlays. The company topped earnings and revenue expectations on Wednesday night, while Azure revenue rose 48% from a year earlier. Capital expenditures and finance leases of $45.2 billion also came in below Wall Street forecasts, a result Cramer said supports the view that Microsoft can expand in AI without undermining free cash flow.

Cramer also pointed to growing traction for Copilot, Microsoft's AI assistant for businesses, saying the product started slowly but is becoming a major success. He credited CEO Satya Nadella and CFO Amy Hood for running the company with financial discipline, arguing that this approach positions Microsoft to pull further ahead of rivals.

Alphabet faces pressure over returns and cash flow

Alphabet, by contrast, disappoints investors despite strong growth in Google Cloud. Shares plunge in Thursday trading after the Google parent misses earnings and revenue expectations, with Search and YouTube advertising revenue both falling short of estimates.

Although Google Cloud revenue more than doubles, Cramer argues that the improvement does not offset concerns about Alphabet's core businesses and the scale of its AI spending. The company expects capital expenditures of $195 billion to $205 billion this year, while free cash flow turns negative for a second straight quarter.

He also says Alphabet's remaining $27.6 billion in authorized stock sales could weigh on the shares. While Cramer's Charitable Trust owns both Microsoft and Alphabet, he says he does not want to buy more Alphabet yet and prefers to wait for analysts to lower estimates and for the stock's valuation to reset.

Our earlier coverage of the US AI data center boom highlighted how surging buildout plans are running into higher financing costs, construction delays, and power constraints. We noted that only a limited share of proposed projects appears realistic, and that cost overruns and tighter funding conditions are making investors more sensitive to whether massive AI infrastructure capex can translate into sustainable returns.

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