Big Tech's $1.1T AI bet: Wall Street now wants results, not promises

Microsoft, Meta, Google, Apple, and Amazon updated Wall Street on their finances this earnings season, and one thread ran through all of them: they plan to keep spending massive sums on AI. Combined, the four hyperscalers — Google, Amazon, Microsoft, and Meta — have poured $1.1tn into capital investments since the AI boom began in 2023.

This batch of earnings arrived with investors demanding tangible returns for the spending. The four companies plan to spend $745bn on capex this year alone, mainly on data centres, advanced chips, and the power to run them, after Google and Amazon raised their projections this quarter.

Microsoft shares soared to a six-month high on strong revenue growth and wider adoption of its core AI tool. Amazon's stock hit a two-month high despite negative cash flow and plans to spend $220bn on AI this year, as its other businesses carried it.

Shares fell to their second-lowest level in a year after chief executive Mark Zuckerberg outlined an AI agent and a plan to sell AI tools to other firms — neither of which yet exists or makes money. Meta still raised the low end of its spending plans and is likely to pour more than $140bn into AI this year.

Alphabet reported negative free cash flow on revenue of $118bn — its first cash-burning quarter as a public company. Meta's free cash was just $784m on $61bn of revenue, with its Reality Labs unit losing nearly $9bn in the first half of the year.

Google, Amazon, and Microsoft all reported rising growth in their cloud units, selling computing power to OpenAI, Anthropic, and corporations adopting AI. Meta, which has no cloud business, said AI is sharpening its ad targeting, lifting total revenue 28% year-on-year to $61bn.

The bet partly hinges on OpenAI and Anthropic continuing to raise funds to meet multiyear commitments to buy computing power. The spending rush has also strained supply chains and caused a memory-chip shortage that hurt Apple, whose stock fell 6.3% after it warned of lower sales and margins.

Google said 950 million people now use its Gemini chatbot at least monthly, triple its user base a year earlier. But no chatbot yet brings in meaningful revenue on its own.

The market's message is that promises are no longer enough. As RBC analyst Rishi Jaluria put it, companies must "toe the tight line between investing in AI and not compromising the things that have made them successful." Investors now reward spending only when it flows through to results.