"Overinvestment is the biggest AI-related risk, with Alphabet budgeting $180 billion and Meta budgeting $125 billion for capital spending in 2026, consuming most of their cash flow."
"Ad revenue growth has reaccelerated at both firms recently, as AI investments have increased user interactions and improved ad targeting, lifting ad prices."
"Amazon's demand-side platform offers a rich opportunity for advertisers to reach narrowly targeted audiences, based on the company's proprietary first-party data."
"Netflix wisely walked away from Warner Bros. Discovery after Paramount Skydance raised its offer, avoiding overpaying for a streaming and studio business that it doesn't need."
Alphabet and Meta are investing heavily in AI, with budgets of $180 billion and $125 billion respectively for 2026. These investments are expected to consume most of their cash flow, but the growing digital ad market should support their spending. Both companies have seen ad revenue growth due to increased user engagement and improved ad targeting from AI. Amazon is also expanding its ad business, posing a competitive threat to Alphabet and Meta. Netflix avoided overpaying for Warner Bros. Discovery, focusing on its core strengths.
Read at www.morningstar.com
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