Google Kills Diversity Hiring Targets — WSJ

By Jacob Sonenshine

Alphabet shareholders aren't happy about the company's plans for enormous investments this year, but a host of other businesses will directly benefit.

After the close of trading on Tuesday, Alphabet reported mixed financial results and said that its capital expenditures will total $75 billion this year. That is more than $15 billion above what analysts had forecast and is almost 45% higher than last year's capex. Combined capital spending for Alphabet, Meta Platforms, Amazon.com and Microsoft is expected to reach hundreds of billions of dollars this year, for double-digit percentage growth.

For these companies, and certainly Alphabet, this will weigh on free cash flow and earnings. Alphabet's depreciation expense will rise significantly this year, and as far as the market is concerned, the company had better maintain its competitiveness with its artificial intelligence offerings for both its search and cloud businesses, so that it can earn a high rate of return on the investments.

Although the stock was in the red as investors reduced their expectations for this year's earnings, the positive is that management's willingness to invest aggressively indicates that the Chinese app DeepSeek hasn't posed a major threat to demand for Alphabet's AI offerings.

The news is clearly a relief for all of the companies that produce hardware to power AI. The faster capex increases, the higher the growth of demand for semiconductors, data centers, and all the products that go into building them.

Those stocks have taken a hit recently — Nvidia stock is still 19% below the record closing level it hit in January — because the market is concerned that DeepSeek's lower-cost and cheaper AI offering will ultimately force companies such as Alphabet and Microsoft to scale back their investment plans. That would mean less hardware demand than the market is counting on now.

But the capex guidance from Alphabet and other U.S. technology services companies this earnings season proves that growth remains steep for of all things data center.

Eventually, data-center spending will slow down, but for the moment, it is obvious that DeepSeek isn't at a large enough scale to disrupt U.S. companies' investments. That will give them time to fine-tune their AI offerings and make them more competitive.

For now, high growth in spending on data centers lives on. That is why most stocks that stand to gain as companies build more computing capacity were rallying Wednesday. Nvidia was off of its recent low, up 3%.

Chip maker Broadcom, which got more than a fifth of its $53.2 billion of 2024 sales from AI chips, boasted a jump of more than 200% in sales of those semiconductors last year. Continued explosive AI growth will go a long way in pumping profits far higher, so the stock was up just over 6% Wednesday.

Micron Technology stock rose 2% Wednesday, outpacing the iShares Semiconductor exchange-traded fund's just under 2% gain. Micron, which is ramping up sales of high bandwidth memory that attaches to Nvidia's AI chips, still gets only a small chunk of its total revenue from AI. That has limited its gains relative to other AI names.

Arm Holdings stock was up more than 6%. Analysts expect sales to continue to grow for the coming years, as Arm sells CPU products into Nvidia's chips and licenses its chip designs to semiconductor companies and smartphone makers.

Stock in Amphenol, which is ramping up sales of connectors that go into Nvidia chips, rose initially, before dipping into the red. It remained above a one-month low reached when concernS about DeepSeek hammered the stock market last week.

Analysts expect sales of connectors for Nvidia chips will account for just over $1 billion of its $18.3 billion in total sales this year, according to FactSet. The vast majority of Amphenol's business is still tied to areas such as automobiles, so the stock slipped along with shares of hundreds of other U.S. companies.

The key to remember is that Alphabet's capex guidance is a positive for Amphenol's earnings.

Stock in Vertiv Holdings, a manufacturer of cooling equipment that gets the majority of its sales from data centers, was up almost 6%. Shares of Eaton, a rival that is less dependent on data-center sales, rose initially, but then dipped into the red. Stock in Schneider Electric, a third maker of cooling equipment, was also in the red, but above its one-month low.

Corning and nVent, both of which see a slice of revenue from AI, were both up around 2%.

However these stocks trade in the short term, expect them to ride a tailwind of AI-related demand.

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

US benchmark equity indexes were mixed intraday as markets weighed the latest batch of economic data and corporate earnings.

The Dow Jones Industrial Average was up 0.3% at 44,710.9 after midday Wednesday, while the S&P 500 rose 0.2% to 6,046.9. The Nasdaq Composite fell 0.1% to 19,637.1. Among sectors, real estate and utilities paced the gainers, while communication services saw the biggest drop.

In economic news, employment growth in the US private sector topped expectations for January, while pay gains stabilized, Automatic Data Processing reported.

On Friday, the Bureau of Labor Statistics is expected to report that the US added 170,000 nonfarm jobs for January, which would mark a drop from the 256,000 gain posted for the month prior, according to a Bloomberg-compiled survey.

Growth in the US services sector slowed in January amid weakness in business activity and new orders, two surveys by the Institute for Supply Management and S&P Global showed Wednesday. The ISM survey indicated concerns among panelists regarding potential tariff actions by the Trump administration.

"We expect that the service sector will grow along a solid trend going forward," Jefferies said in a note to clients. "Our base case expectation is that the net effect of the tariffs will be rather modest on corporate profit margins and inflation, and that the drag will be overwhelmed by the positive impacts of deregulation and tax cuts."

On Tuesday, China announced a series of retaliatory tariffs against the US. The Trump administration recently announced 25% tariffs on goods from both Canada and Mexico, along with a 10% levy on imports from China. However, President Donald Trump on Monday paused the announced tariffs on Mexico and Canada for a month.

The US 10-year yield fell 9.3 basis points to 4.42% intraday, while the two-year rate dropped 3.8 basis points to 4.18%.

In company news, Johnson Controls International shares jumped nearly 13%, the top gainer on the S&P 500, after the building systems manufacturer increased its fiscal 2025 earnings outlook and announced a new chief executive.

Amgen was the best performer on the Dow, up 5.5%. The company delivered a fourth-quarter beat late Tuesday.

Advanced Micro Devices shares were down 8.2% intraday Wednesday, the steepest decline on the Nasdaq and among the worst on the S&P 500. Late Tuesday, the chipmaker forecast a sequential decline in revenue for the first quarter and reported weaker-than-expected data center sales for the fourth quarter.

Alphabet's class A and C shares fell more than 7% each intraday Wednesday, among the worst performers on the S&P 500 and the Nasdaq. The Google parent's fourth-quarter revenue trailed Wall Street's estimates late Tuesday, while its earnings came in stronger than expected.

Qualcomm , Arm (ARM), McKesson , O'Reilly Automotive and MicroStrategy are among the companies scheduled to report results after Wednesday's closing bell.

West Texas Intermediate crude oil declined 2.2% to $71.14 a barrel intraday.

Gold was up 0.6% at $2,893 per troy ounce, while silver fell 0.1% to $32.99 per ounce.

Tech stocks gained Wednesday afternoon, with the Technology Select Sector SPDR Fund (XLK) up 0.9% and the SPDR S&P Semiconductor ETF (XSD) rising 1.7%.

The Philadelphia Semiconductor index rose 2.1%.

In corporate news, Alphabet shares fell past 7% after it reported late Tuesday Q4 revenue that trailed analysts' estimates.

Advanced Micro Devices shares fell 7.8% after the company forecasted a sequential decline in revenue for Q1 and reported weaker-than-expected data center sales for Q4 despite upbeat top- and bottom-line results.

Apple faces a potential investigation by Chinese regulators, specifically the State Administration for Market Regulation, into its App Store fees and policies that restrict third-party payment providers, which highlights broader tensions between China and US tech companies, Wedbush said in a note Wednesday. Apple shares fell 1.2%.

US equity indexes traded mixed in choppy midday trading Wednesday as investors weighed an unexpected deceleration in services with disappointing big-tech results overnight and uncertainty over the timing of trade talks with China.

The Nasdaq Composite was 0.1% lower at 19,638.3. The S&P 500 added 0.2% to 6,046.9, and the Dow Jones Industrial Average climbed 0.4% to 44,711.4. Consumer discretionary and communication services were the laggards intraday, while real estate and technology led the top gainers.

Alphabet shares slumped 7.3% intraday after the company reported late Tuesday Q4 revenue that trailed analysts' estimates. Advanced Micro Devices sank 8% after the chipmaker overnight reported weaker-than-expected data center sales for Q4 and guided to a sequential decline in Q1 revenue. Shares of the duo were among the worst performers on the S&P 500 and the Nasdaq.

The Institute for Supply Management's US services index fell to 52.8 in January from 54 in December, compared with expectations for no change in a survey compiled by Bloomberg. The index indicates slower expansion, which is in line with the Richmond Fed, Dallas Fed, and the S&P Global indexes but in contrast with the New York Fed, Kansas City, and Philadelphia Fed measures that signaled contraction.

The Prices Paid index, reflecting inflation in the services data, fell to 60.4 from 64.4 in December, the highest since February 2023, according to a Jefferies note.

"This [Prices] index has been in the process of gradually slowing from above 80 during H2 2021 and H1 2022, to the low-70s in H2 2022, and then the mid-50s from the beginning of 2023," Jefferies US economist Thomas Simons said. "Since the beginning of 2024, the index has shown strong resistance in falling to the low-50s or below."

US Treasury yields fell, with the 10-year down 9.9 basis points to 4.41% and the two-year 4.2 basis points lower at 4.17%.

Gold futures traded 0.6% higher at $2,893.01 an ounce after touching a new record high of 2,906.00 earlier in the session.

The gains come as the Trump Administration negotiates punitive trade tariffs on its partners. President Donald Trump this week imposed a 10% additional tariff on imports from China and postponed for 30 days planned blanket duties on imports from Canada and Mexico, the largest US trading partners. He also threatened to place tariffs on imports from the European Union.

"Precious metals' ongoing rally has taken gold to a record ... amid worries that global tariffs will impede growth, raise debt levels, and increase inflation while boosting demand for safe-haven assets," Saxo Bank said in a note.

West Texas Intermediate crude oil futures dropped 1.9% to $71.31 a barrel.

US commercial crude oil stocks, excluding the Strategic Petroleum Reserve, rose by 8.7 million barrels in the week ended Jan. 31 after a 3.5-million-barrel gain in the previous week, larger than the 1.9-million-barrel increase expected in a survey by Bloomberg.