On January 29, Microsoft’s stock plunged 6.7%. Then, on February 4, Alphabet saw a staggering $200 billion wiped off its market cap after a 7.8% drop in share price. Ouch. So, what’s going on? Are we seeing the end of Big Tech’s growth story? And does this signal the demise of the AI boom?
The Cloud: Big Tech’s Cash Cow
For years, Big Tech’s cloud platforms have been major profit drivers. With over 3 billion daily users, demand for cloud services has been sky-high. But if growth in this sector starts to slow, it could signal waning demand. No wonder analysts and investors watch cloud growth numbers like hawks.
And now, with hundreds of billions flowing into AI, cloud growth is even more under the microscope. So, what did the numbers say?
– Alphabet’s cloud revenues grew 30%, a dip from the previous quarter’s 34%. While 30% is solid in most industries, it wasn’t enough to keep investors happy, and their stock took a dive.
– Microsoft’s Azure reported a 29% growth, down from 31%. Again, a drop that sent its stock tumbling too.
So, is the cloud slowing down?
The Real Story: AI Demand Outstripping Supply
Here’s where things get interesting. It’s not that demand is falling off a cliff—far from it. According to Alphabet’s management, the real issue is a supply crunch. The company’s cloud services are in high demand, but it simply doesn’t have enough compute capacity to meet that demand.
In fact, Google Cloud’s slowdown is all about supply constraints. Alphabet admitted, *“We exited the year with more demand than we had available capacity, so we are in a tight supply-demand situation…”*
Same story at Microsoft: Azure’s growth is limited by a shortage of data center capacity. It’s not that the demand isn’t there; it’s that Big Tech can’t keep up.
Too Much Demand, Too Little Supply: The Golden Opportunity
What’s happening in AI right now? It’s a classic case of *too much demand, not enough supply*. But that’s actually a fantastic problem for the industry, because it means massive investments are coming to build out more AI infrastructure.
In 2025 alone, here’s how much the big players will pour into data centers:
– Alphabet: $75 billion
– Microsoft: $80 billion
– Meta: $60 billion
And that’s just three companies! Altogether, Big Tech will spend around **$320 billion** this year on data centers.
What does this mean? A flood of cash is about to hit the companies that build and service those data centers—think chip makers, semiconductor suppliers, and energy companies.
The Bottom Line: AI Isn’t Going Anywhere
So, what does this mean for investors? The recent stock drops in Microsoft and Alphabet? A slight overreaction. The AI boom is far from over, and any dips in share prices are *prime* buying opportunities.
Not a subscriber to Money Morning?
You can get free daily recommendations like these with Money Morning eletter. Just sign up here.
