Meta Platforms (NASDAQ:META) and Alphabet Inc. (NASDAQ:GOOGL) have become two of the biggest investors in artificial intelligence, but their latest results pose an uncomfortable question: how much of that spending is already producing returns?
Both giants are growing advertising revenue, and yet their cash flows tell a less straightforward story, which is significant for investors because their valuations are remarkably close. Yahoo Finance’s latest available valuation data places Meta at 22.08 times forward earnings and Alphabet at 22.83 times.
The numbers show that investors are assigning roughly the same earnings multiple to two companies making very different bets on AI infrastructure. Let’s take a deeper look at this. But before that, we meticulously compiled a list of the best big name stocks to buy according to financial media, and there are eight stocks other than GOOGL and META that rank on that list. Access the complete list for free here.
Bull Case
Meta’s advertising business is performing better than its profit figures initially suggest. Second-quarter revenue increased 28% to $60.8 billion, with ad impressions rising 14% year-over-year and average price per ad climbing 12% year-over-year. Those figures suggest growth came from both advertising volume and pricing, and not merely a larger audience. Daily users across its apps increased a much more modest 3% to 3.60 billion. The contrast points to stronger monetization of the audience Meta already has.
In other news, an ex-Google researcher said AI could “Kill Us All”. Should Alphabet investors care? Meanwhile, Alphabet has a second profit engine that distinguishes it from Meta. Google Cloud revenue rose 82% to $24.8 billion. This is especially relevant to the valuation because Alphabet’s growing cloud business is contributing material earnings and not just remaining an expensive undertaking whose commercial success is still hypothetical.
Google’s established advertising operation has also continued to grow. Google Search and other revenue increased to $63.3 billion from $54.2 billion a year earlier. Alphabet further reported that its total operating income rose 30% to $40.8 billion, faster than its 24% revenue growth. Unlike a valuation case resting solely on future AI products, these results show expanding profitability in the existing business. Which other big name stocks does the financial media favor? Access our complete list here for free.
Bear Case
We also shortlisted the best healthcare stocks to buy according to hedge funds. Check out the complete list here to make an informed decision. Meta’s biggest challenge is the cost of supporting that expansion. Quarterly spending rose 55% year-over-year to $42.0 billion, although that includes $2.4 billion in legal charges and $1.18 billion of severance costs in connection with its May 2026 headcount reduction. These items help explain why operating income declined 8% despite strong revenue growth, but they also make it misleading to treat the entire expense increase as recurring AI investment.
Still, its infrastructure commitments are substantial. Meta Platforms (NASDAQ:META) spent $31.08 billion on capital expenditures, including finance-lease principal payments, leaving just $784 million of free cash flow despite $31.86 billion in operating cash inflows. Meta also recently made a substantial C$13 billion bet in Alberta to bolster its infrastructure advantage. But would it be able to do so? Read our article for insight. Management also expects full-year capital expenditures of $130 billion to $145 billion. The advertising engine is generating cash, but much of it is being redirected into infrastructure.
Alphabet presents a different accounting trap. Its reported EPS jumped to $9.11, but a net gain on equity securities added approximately $6.26 per share after tax. That investment gain should not be confused with recurring growth from Search or Cloud.
Alphabet’s free cash flow was also negative $5.86 billion in the quarter. Even with Cloud delivering strong profits, the company invested more in physical infrastructure than its operating cash flow generated that quarter, and so its capital intensity is no longer a footnote to the AI story.
Conclusion
Similar forward P/E ratios conceal different economics when it comes to these two giants. Meta Platforms (NASDAQ:META) is improving advertising monetization while making a heavy investment whose future returns remain unproven. Alphabet Inc. (NASDAQ:GOOGL) has already turned rapid cloud growth into significant operating income, but its infrastructure spending is consuming substantial cash too.
The more useful valuation question is not which company mentions AI more often, but how much additional operating profit and free cash flow those investments can generate without requiring spending to keep rising at the same pace.
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This article is originally published at Insider Monkey.
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