Big Tech has eased investor concerns about its historic spending binge on artificial intelligence, posting quarterly results that surpassed expectations and showed early signs that AI is boosting earnings.
Alphabet, Meta and Microsoft were the clear winners, collectively adding more than $350bn in stock market value after reporting double-digit increases in revenue and net income. Microsoft became the second company to reach $4tn in market capitalisation, following chipmaker Nvidia, while Meta rose 11 per cent to just shy of $2tn.
Strong growth in Google and Microsoft’s cloud computing divisions and an uptick in Meta’s advertising margins were used to justify another massive increase in capital expenditure. The trio, along with Amazon, are on track to spend more than $350bn this year on data centres and other AI infrastructure and in excess of $400bn in 2026.
Microsoft chief executive Satya Nadella pledged to invest $120bn over the next four quarters and “scale data centre capacity faster than any other competitor”.
Meta guided to capex of $105bn next year as it breaks ground on a data centre the size of Manhattan in Louisiana called Hyperion. Chief executive Mark Zuckerberg meanwhile has been luring engineers to his “superintelligence” lab with pay packages in the hundreds of millions of dollars.
In previous quarters, investors have reacted negatively to the vast sums being thrown at AI, worrying that investment is not matched by increased earnings. This time, however, they have taken the prospect of another expansion in capex in their stride.
They have been encouraged by Big Tech pointing to strong demand for AI computing power and a backlog of customer orders. It has also provided greater clarity on how the nascent technology is generating revenue.
“While there is no end in sight for spending, the narrative has shifted dramatically, as these companies are now showing the returns,” said Jim Tierney, head of the concentrated US growth fund at AllianceBernstein.
The positive market reaction has been “truly remarkable”, he said, driven by a “double whammy” of higher cloud revenues and sales of AI services.
Meta stock jumped after Facebook’s parent showed tangible evidence that AI was helping it target ads and charge more for them as a result. Its price per ad rose 9 per cent year on year, while the number of adverts served increased by 11 per cent.
The initial public offering of design software maker Figma further boosted the hype around tech. Its shares surged 250 per cent on its debut on Thursday to a valuation of more than $60bn, three times the price that bigger rival Adobe offered when it tried to buy the start-up in 2022.
“If we’re not there already, we are close to the fervour stage. Markets are wildly optimistic. No one wants to think about the downside. They just want to be a part of this,” said Drew Dickson, founder of Albert Bridge Capital. “But the fact is that not everyone can win, and spending on AI is not necessarily a panacea.”
Brent Thill, an analyst at Jefferies, said that investors would sound the alarm again if the pipeline of demand for AI-related cloud computing slumped.
“[But] as long as the revenue and booking figures are there, they can spend whatever they want,” he said. “It’s a continued capex war . . . there are like five companies that can spend at the magnitude needed to be in the race. Most investors believe that if one company doesn’t, someone else will.”
Amazon was the outlier in the quarter’s earnings. Its shares fell 7 per cent following its earnings report, a reminder that sentiment around AI is fragile if growth slows and costs rise.
The ecommerce giant led the way in spending in the second quarter at $31.4bn and Jefferies estimates this will hit $106bn this year.
Despite beating financial estimates, analysts criticised “disappointing” momentum at its market-leading AWS cloud unit, compared with faster growth at Microsoft Azure and Google Cloud.
Chief executive Andy Jassy also warned of further uncertainty around Donald Trump’s tariff policies. Late on Thursday, the US president reimposed tariffs on dozens of countries as he pressured them to strike trade deals.
Apple surprised the market with a 10 per cent increase in revenue as iPhone sales remained resilient. Executives also promised to spend more on AI to address criticism that they have fumbled efforts to integrate it into devices so far.
However, the shares failed to gain much traction. The company remains particularly exposed to Trump targeting China, Taiwan and India — linchpins of its supply chain — with punitive tariffs.
Other obstacles remain that could derail the advance of Silicon Valley.
US, EU and UK antitrust regulators are pursuing a raft of monopoly lawsuits against the sector that could see the tech conglomerates broken up or opened up to rivals.
The Federal Trade Commission is seeking to force Meta to divest WhatsApp and Instagram. Microsoft’s cloud business is being probed in the US and in Britain. The FTC has sued Amazon for alleged price manipulation. Apple faces litigation from the Department of Justice for allegedly creating an impenetrable ecosystem around the iPhone, despite hopes that Trump might quash the Biden-era lawsuit.
Alphabet faces the biggest issues, having lost three consecutive antitrust cases brought against its search, advertising and app store businesses. The Google parent may have to sell its Chrome browser and share its index data with rivals.
The final Big Tech company to report earnings will be Nvidia in late August. The $4.3tn chip giant has been the main beneficiary of the spending boom as its peers battle to secure supplies of its GPUs used in the training and running of AI models. It expects revenues of around $45bn in its second quarter, up 50 per cent on the $30bn reported a year ago.
“Tech is blowing out the numbers, so continues to get all the attention,” said Dickson.
“When they built the railroads in the 1880s, the equity values initially went nuts until reality set in, same story for radio stocks in the 1920s, and ‘dot-coms’ in the 1990s,” he added. “We will reach that stage with AI that we’ve seen time and time again. Everything today is being lifted by the tide. There will eventually be winners and losers, but that won’t be clear for a while.”
Additional reporting by Rafe Uddin, Tabby Kinder and Hannah Murphy
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