AI Upends Big Tech’s Power Balance: Alphabet Tumbles 10%, Apple’s Clout Erodes

1. Alphabet Tumbles 10% as AI Spending Sparks Backlash

Alphabet shares plunged more than 10% on October 29 after third-quarter search and advertising revenue missed market expectations, fueling concern that artificial intelligence could erode Google’s core profit engine. If the decline persists in regular trading, the company stands to lose about $395 billion in market value.

Third-quarter revenue, excluding partner payouts, came to $111.2 billion, below market estimates. Search and other advertising revenue also fell short of expectations, and ad-revenue growth was the weakest in the past five quarters. YouTube advertising revenue totaled $11.2 billion, also missing forecasts.

Investors focused especially on the challenge of monetizing AI search. Chief Business Officer Philipp Schindler said use of AI Mode is rising quickly, but ad monetization remains lower than in traditional search, weighing on results. User migration to rival AI services such as ChatGPT and Claude is also threatening Google’s long-term advertising business.

The scale of Alphabet’s AI spending commitments further hurt sentiment. Future payments committed for computing resources and energy totaled $924 billion, while additional obligations, including data-center leases that have not yet begun, reached $152 billion. Combined, those commitments exceeded $1.076 trillion.

Alphabet posted negative free cash flow for a second straight quarter, the first time it has done so since its 2004 listing. Capital expenditures this year are projected to reach as much as $205 billion, more than double last year’s level.

Third-quarter earnings per share came in at $2.12, well below the $2.99 expected by analysts. Results were also hit by $8.7 billion in equity investment losses, centered on holdings including its stake in SpaceX.

Google Cloud was a bright spot. Revenue rose to $30.7 billion, above the $29.1 billion expected by analysts, while operating profit reached $11.1 billion and also topped forecasts. Even so, Wall Street’s view is that cloud growth alone is not enough to offset weak search advertising and the burden of AI spending.

2. AI Rewrites Chip Industry Power, and Apple Takes a Hit

Apple’s decades-long bargaining power in the memory-chip market is weakening as the AI industry grows at breakneck speed. Apple once used its status as the world’s largest flash-memory buyer to demand lower prices from suppliers. Now big tech companies building AI data centers are offering higher prices and locking up supply first.

The Wall Street Journal reported on October 29 that as recently as two years ago, Apple bought roughly twice as much flash memory as Microsoft, Amazon, Meta and Google combined. Now those four companies together are estimated to be buying about twice as much as Apple.

Flash-memory prices have risen roughly fivefold over the past year, according to TechInsights. Apple’s flash-memory procurement costs are projected to reach about $25 billion this year, up more than fourfold from $6 billion last year.

One area where Apple is being hit especially hard is iPhone storage upgrades. Last year, consumers paid an extra $200 to upgrade an iPhone 17 Pro from 256 gigabytes to 512 gigabytes, while Apple’s incremental cost was only about $15. That cost has now climbed to about $66.

Apple has long generated high profit from those storage upgrades. The Journal estimated that iPhone storage upgrades alone may have produced more than $10 billion in gross profit last year.

Apple’s negotiating tactics were once highly aggressive. Tony Blevins, the executive who oversaw procurement, pushed suppliers to compete against one another on price and demanded most-favored-customer terms that prevented them from offering lower prices to other clients. Apple also secured the right to audit suppliers’ books.

According to the Journal, Scott Nelson, a sales executive at Kioxia, became so frustrated during negotiations with Apple that he shot his iPod with a gun. The remains are still on his desk, the report said.

Now Meta, Microsoft and Amazon are offering higher prices and signing long-term supply deals with Kioxia. That has reduced the need for suppliers to accept Apple’s demands for lower prices.

3. Microsoft Proves AI Spending Is Paying Off, Shares Rise 4%

Microsoft reported earnings that beat market expectations, helped by strong growth in its AI cloud business. Investors responded positively to the company’s ability to sustain revenue growth and positive free cash flow even as it continues to spend heavily on AI.

Revenue for the first quarter of fiscal 2027 rose 19% from a year earlier to $92.28 billion, topping the $90.69 billion expected by the market. Adjusted earnings per share came in at $4.89, above the $4.73 consensus estimate.

Azure was the standout. Revenue climbed 48% from a year earlier to $33.17 billion, up from 42% growth in the previous quarter. Chief Financial Officer Amy Hood said Azure growth in the next quarter will be 49% to 50% excluding currency effects.

Capital expenditures and finance leases totaled $45.2 billion in the quarter, up roughly 30% from a year earlier. About 75% of total capital spending was concentrated in shorter-lived assets such as CPUs and GPUs.

That suggests Microsoft is focused not only on building data centers but also on securing chips that can immediately support AI computing services. GPU technology evolves quickly, however, which could raise depreciation costs over time.

Free cash flow totaled $18.63 billion in the quarter, down 27% from a year earlier, but it remained positive. That contrasted with Alphabet and Meta, which posted deficits.

Microsoft is also expanding its strategy of bundling Copilot into existing enterprise software including Word, Excel, Outlook and Teams. Chief Executive Officer Satya Nadella said the number of Microsoft 365 Copilot users rose 50% from the previous quarter.

Separately, Microsoft is preparing a corporate bond sale of at least $25 billion. The deal would mark its return to the US investment-grade bond market for the first time since 2017.

The offering will include maturities ranging from two years to 40 years. Initial price talk for the longest-dated bonds, due in 2066, was set at as much as 135 basis points above comparable Treasuries.

Microsoft, one of the few companies with a top-tier AAA credit rating, is poised to test how willing the bond market is to fund Big Tech’s AI capital spending.

4. Oracle Jumps 11% as Debt Concerns Ease

Oracle shares surged 11% on October 28. After trading opened on October 29, the stock reversed course and fell 3%. The company laid out a long-term revenue growth target and capped additional fundraising, easing concern that heavy AI investment would drive debt sharply higher.

At its investor day, Oracle said revenue in fiscal 2030 will reach $225 billion, implying average annual growth of about 35%. The company also said operating margin will exceed 40%.

Oracle said additional fundraising over fiscal 2027 through fiscal 2030 will be capped at $20 billion. Of that, $10 billion will come from equity issuance and the remaining $10 billion from debt.

The company plans to reduce upfront cash outlays by using vendor financing, customer-provided hardware and customer prepayments. In effect, it does not intend to fund all of its data-center construction through its own borrowing.

Oracle’s long-term debt stands at $117 billion. Its S&P credit rating is BBB-, the lowest rung of investment grade. One more downgrade would push it into junk status.

AI data-center spending is also climbing rapidly. Capital expenditures in fiscal 2026 totaled $55.7 billion, more than double the previous year. They are forecast to reach $91.9 billion in fiscal 2027.

Oracle said free cash flow will turn positive in the second half of fiscal 2028 and exceed $30 billion in fiscal 2029.

Credit-market concern has not disappeared completely. Oracle’s five-year credit-default swap premium stood at 277 basis points, down from 320 basis points earlier this month but still roughly double the level at the start of the year.

On Wall Street, Oracle’s stock and credit rating will hinge on whether the company can deliver on its revenue growth and cash-flow improvement targets.

5. Marvell Nears Deal to Buy Lumentum for $83 Billion

Marvell Technology is in late-stage talks to acquire optical networking equipment maker Lumentum Holdings, as growing AI data centers boost the importance of technology that can connect chips and servers at higher speeds.

Bloomberg reported that the companies could announce a deal as soon as next week. Lumentum’s market capitalization is about $83 billion, while Marvell’s is about $221 billion. If completed, the transaction would rank among the 10 biggest mergers and acquisitions ever in the global technology and telecom industries.

In premarket trading on October 29, Marvell shares fell about 11%, while Lumentum rose about 4.8%, after news of the talks.

Marvell designs custom AI semiconductors and networking chips. Lumentum makes lasers and optical components used for high-speed data transmission in data centers.

AI data centers connect large numbers of GPUs into one massive computing system. As data-transfer speed and power efficiency become more important, demand is rising quickly for optical communications, which use light instead of traditional copper wiring.

Supply of optical components is already struggling to keep up. Chief Executive Officer Michael Hurlston said key optical-component orders are effectively sold out through early 2029. For some products, supply is projected to fall short of meeting about 70% of expected demand next year.

Lumentum plans to invest at least $350 million in Japan to expand production capacity. The company is focusing in particular on increasing output of indium phosphide, which is used in lasers for high-speed optical communications.

Marvell previously acquired optical interconnect technology company Celestial AI. If it also secures Lumentum, it would gain both the optical communications technology needed to connect AI chips, servers and data centers and the manufacturing capacity for key components.

Nvidia also agreed earlier this year to invest $2 billion in Lumentum. The move underscores how competition in AI is expanding beyond GPU performance to data-transfer technology and control of optical-component supply.

6. US Refining Stocks Soar 150%: Can the Rally Last?

Shares of US refining companies have surged about 150% this year, putting the group on track for a record gain. The rally has been driven by widening refining margins as petroleum-product supplies tightened following the war in Iran and disruptions at Russian refining facilities.

The S&P 500 Oil & Gas Refining & Marketing Index had gained 157% this year through October 26, according to Dow Jones Market Data. That would mark the biggest annual increase since the data series began in 1996.

Among individual stocks, Marathon Petroleum had climbed 168% this year through October 28. Valero Energy was up 136%, and Phillips 66 had gained 109%.

More recently, though, investors have started taking profits. The refining index fell 7.9% in a single session on October 27, the biggest drop since April 2025.

The key driver behind refiners’ earnings has been the refining margin. That is the price spread refiners earn by buying crude oil and processing it into products such as gasoline and diesel.

On October 28, US gasoline futures traded at about $132 a barrel, while West Texas Intermediate crude was at about $102. The simple price gap was roughly $30 a barrel.

Refining margins have surged this year because the war in Iran disrupted petroleum-product supplies from the Middle East, while attacks on Russian refining facilities added to the strain.

Russian refinery operations, however, are now recovering. JPMorgan said no attacks on Russian refining facilities have been confirmed since October 15, and crude-processing volumes rose by 350,000 barrels a day last week to reach 4 million barrels a day.

If supply continues to normalize, refining margins may fall, creating pressure on refining stocks.

Even so, another supply squeeze could emerge next year. Tom Kloza, chief energy adviser at Gulf Oil, said the US refining industry could face an unusually large wave of maintenance in the second quarter of 2027.

US refineries have been running at high utilization rates this year, increasing stress on equipment. For the week ended October 23, refinery utilization stood at 92.8%, up 6.2 percentage points from a year earlier.

If major maintenance takes place all at once next spring, gasoline and diesel supplies could tighten again, pushing refining margins higher.

On Wall Street, the view is that even if refiners maintain elevated profitability, further gains in the stocks may be limited after their sharp run-up. The sector’s next move will depend on how quickly supplies normalize in the Middle East and Russia, how extensive next year’s maintenance turns out to be, and where refining margins head from here.

Park Shin-young, New York correspondent, Hankyung.com, nyusos@hankyung.com