Big Techs AI Spending Finally Delivers

After years of outsized spending on artificial intelligence, Silicon Valley’s biggest names are beginning to show results. Alphabet, Meta and Microsoft all delivered quarterly earnings this week that beat expectations, offering the clearest sign yet that the AI arms race is starting to pay off.

Together, the three companies added more than $350bn in market value following the announcements. Microsoft became only the second firm to reach a $4tn valuation, following Nvidia. Meta’s stock jumped 11 per cent, putting it within striking distance of the $2tn mark.

For investors who had grown wary of spiralling capital expenditure, the results provided reassurance. Google and Microsoft both posted strong growth in their cloud divisions, while Meta’s advertising business benefited from better targeting and pricing, underpinned by AI tools. These concrete returns helped justify another surge in planned investment.

Microsoft said it would invest $120bn over the next four quarters, mainly in data centre infrastructure. Chief executive Satya Nadella told analysts the company was committed to scaling capacity “faster than any other competitor”.

Meta, meanwhile, said it expected to spend $105bn next year. The company is already breaking ground on a new hyperscale data centre in Louisiana, dubbed Hyperion, which will be the size of Manhattan. Mark Zuckerberg’s push to build a “superintelligence” lab has included handing top AI engineers pay deals worth hundreds of millions.

Wall Street, which had previously expressed doubts about the scale of Big Tech’s AI investment, took the new figures in its stride. Executives pointed to growing demand for AI computing power and a solid backlog of customer orders. More importantly, the companies gave investors clearer signals that AI was generating revenue now, not just in some far-off future.

“While there is no end in sight for spending, the narrative has shifted,” said Jim Tierney, who manages the concentrated US growth fund at AllianceBernstein. “These companies are now showing the returns. We’ve got the double benefit of higher cloud revenues and sales of AI services.”

Meta’s core advertising business delivered some of the strongest evidence. It reported a nine per cent rise in price per ad and an 11 per cent increase in volume. Executives said this was directly linked to new AI-driven tools that help advertisers better target users and measure performance.

Alphabet and Microsoft also impressed with gains in cloud services. Azure and Google Cloud both posted double-digit growth, narrowing the gap with Amazon Web Services. Analysts noted that while the companies are still in a spending race, they are beginning to show what that spend can achieve.

The broader market took another cue from Figma, the design software company whose initial public offering became one of the biggest in years. Its shares surged 250 per cent on debut, giving the firm a valuation above $60bn. That’s three times what Adobe had offered to pay in 2022, before regulators blocked the deal.

“If we’re not already there, we’re close to the fervour stage,” said Drew Dickson, founder of Albert Bridge Capital. “Markets are wildly optimistic. Nobody wants to hear about the downside. They just want in. But not everyone can win, and AI won’t fix everything.”

One reminder of that came from Amazon. The e-commerce and cloud giant reported decent top-line numbers but disappointed with slower-than-expected growth at AWS. Shares fell seven per cent as investors questioned whether the company was keeping pace with rivals.

Amazon led all tech firms in spending during the second quarter, with capital expenditure hitting $31.4bn. Analysts at Jefferies estimate full-year spending could reach $106bn. Even so, AWS appears to be losing share relative to Microsoft and Google.

Chief executive Andy Jassy also raised concerns about the impact of President Trump’s latest tariff measures. In a late-night announcement, the White House reimposed duties on dozens of countries, fuelling fears of renewed supply chain disruption and higher costs. For Amazon, which depends on a wide global sourcing network, the risks are clear.

Apple posted a surprise 10 per cent rise in revenue, driven largely by resilient iPhone sales. The group promised to increase AI investment, following criticism that it had fallen behind rivals. But its shares failed to move significantly. Analysts say the company remains highly exposed to Trump’s tariff policies, especially with China, Taiwan and India all facing new duties.

Geopolitical risk isn’t the only threat. The US, UK and EU are all pursuing antitrust action against the tech giants. Microsoft’s cloud business is under scrutiny in multiple jurisdictions. Apple faces litigation over alleged monopolistic control of the iOS ecosystem. Meta is being asked to spin off WhatsApp and Instagram. Alphabet has already lost three major antitrust cases and could be forced to divest its Chrome browser or open up its search index to rivals.

Regulatory headwinds could limit the ability of these companies to maintain their dominance, regardless of how successful their AI products become. But for now, investors appear willing to look past the risks, encouraged by the latest numbers and a belief that AI will define the next decade of growth.

Attention will now turn to Nvidia, which reports earnings later this month. The chipmaker has become the most obvious winner from the AI boom, as its high-performance GPUs remain essential for training and running large language models. Nvidia is expected to post second-quarter revenues of $45bn, up from $30bn a year ago.

“Tech is blowing out the numbers, so continues to get all the attention,” said Dickson. “But this is an old story. It happened with railways, with radio, with dot-coms. At some point, the hype fades and reality kicks in.”

He added: “Everything is rising now, but it won’t last. Eventually we’ll see who the real winners are. Until then, the tide lifts all boats.”

For now, though, Big Tech is riding high. The question is how long it can stay there.