Apparently, the extravagant financing required for the computing power capacity race required taking the lead and securing its flank. In any case, this move surprised many analysts following the Palo Alto group, which, in the last fiscal year, boasted a net-debt-free balance sheet and generated an operating profit of $130bn.
Immediate intuitions suggest two possibilities: either credit markets are under profound stress, even for the world's best signature borrowing for the most fashionable theme of the moment; or Alphabet considers its stock overvalued, or at least valued at a level that makes selling equity more attractive and less expensive than the cost of credit in a context of interest rates that have reached a 20-year high.
Or else, it is both at once? Indeed, Alphabet is currently valued at multiples flirting with record highs. Investors may be seeing the same thing as Arvind Krishna, CEO of IBM, for whom the advent and success of AI will depend primarily on distribution, meaning it will first favor companies with large user bases.
Distribution would thus be more important than raw technology. In this respect, the likes of Alphabet, Amazon, Apple and Meta would hold the upper hand in this new landscape, which ultimately is not so different from the old one. On this subject, refer to, "IBM's outlook on AI and the group's transformation", published last week in these columns.
While Alphabet's announcement made headlines and captivated analysts, things must be kept in perspective. For a company commanding a market capitalization of $4,500bn, what is $80bn, other than not less than 2% of its market cap and, as we have seen, barely more than six months of operating profit?
The most interesting aspect perhaps lies in the paradigm shift. Alphabet had not raised capital since 2005, the year following its IPO. In the meantime, the Palo Alto giant has generated so much cash that the problem was more about what to do with it rather than where to find it.
However, the advent of AI changes the game. By 2027, analysts estimate that the group's investments will triple compared to those committed in 2025, thereby consuming almost all of its operating cash flow. In this new configuration, Alphabet will not be able to self-finance its usual capital returns to shareholders.
In any case - and Arvind Krishna hits the nail on the head here - in the burgeoning arms race, the wealthiest will be the best positioned. Alphabet and its advertising business, which generates $200bn in annual revenue with big margins, will have a significant advantage here over other industry stars.
The great absentee from this collective and unprecedented effort is, of course, Apple. The Cupertino giant has not developed its own large language model. Instead, it still controls very large market shares in the physical interface between technology and its users; it is in this niche that it has clearly chosen to remain.
