The massive AI expenditure spree in Silicon Valley is not going to cease anytime soon. However, Wall Street may be getting a bit impatient for a return.
When Meta, Microsoft, Amazon, Apple, and Alphabet, the parent company of Google, announced this week that they are investing more in capital expenditures, including as leases and equipment for data centers and infrastructure, the message became evident.
Based on how analysts probed executives from businesses like as Meta, Alphabet, and Google on earnings calls this week, they are looking for evidence that these enormous expenditures will pay off handsomely.
Spending on AI is still rising
Overall revenue for Microsoft, Alphabet, Amazon, and Meta increased year over year and beyond Wall Street’s forecasts. Amazon Web Services revenues increased by 20% year over year, indicating that businesses are in fact depending on their services in the era of artificial intelligence. Microsoft and Google saw their cloud businesses grow by 40% and 34%, respectively.
Additionally, they continue to invest tens of billions of dollars on data centers and AI infrastructure, which they claim is essential for the future of the internet.
The sums of money involved are astounding.
Google has increased its capital expenditure expectation from $85 billion to $91 to $93 billion for 2025. This year, Microsoft’s expenditure has increased by 74% to $34.9 billion, which is mostly in line with its quarterly forecast of more than $30 billion. Meta spent $19.37 billion, more than the $18.4 billion experts had predicted and up from $9.2 billion a year earlier.
Additionally, Amazon projects that the cost will reach $125 billion in 2025 and plans to raise it in 2026.
Even Apple, which is not a significant cloud provider, intends to raise its capital expenditure spending for AI projects, according to Apple Chief Financial Officer Kevan Parekh during the company’s earnings call on Thursday.
According to Melissa Otto, head of research for the investment research firm S&P Global Visible Alpha, the massive expenditures result from the necessity of upgrading current data centers to manage AI workloads.
Tech titans justify their spending by claiming that demand is outpacing supply. Amazon CEO Andy Jassy stated that “as fast as we’re adding capacity right now, we’re monetizing it.”
Wall Street is looking to Big Tech for big answers
However, Wall Street requires more than simply assurances of future profits. Microsoft’s stock dropped more than 3%, while Meta’s dropped as much as 13.5% on Thursday.
Almost all of the questions on Meta’s earnings call concerned the company’s overall approach to AI, the schedule for new products and models coming out of its Superintelligence Lab, and how it sees its AI investments converting into revenue.
AI powers virtual assistants and aids in campaign planning, according to Zuckerberg. According to him, Meta AI is used by over a billion people every month and can result in “all kinds of new products around different content formats.”
Regarding the Superintelligence Lab’s work, he stated, “We anticipate building novel models and novel products, and I’m excited to share more when we have it.”
Analysts on the Microsoft call wanted to know if customers would fulfill their pledges to make purchases and if the IT sector could actually profit from international AI investments. Microsoft’s chief financial officer, Amy Hood, stated that the company’s investments represent business that has already been scheduled and that demand is rising.
Google investors wanted to discover how AI summaries and agents are affecting how the firm generates money from search. Google’s chief business officer stated that the firm generates roughly the same amount of money from advertisements below and inside AI responses as it does from regular search.
The responses satisfied some analysts; UBS said it maintains its “conviction that AI-related stocks should drive further equity performance,” while CFRA Research said it came away from the quarter “more optimistic” about Google’s core business and that Meta “remains committed to becoming the leading AI lab.” Wedbush Securities’ Dan Ives stated that Microsoft is “hitting its next phase of monetization on the AI front.”
However, it is only if they continue to expand the goods that first made them the largest tech company in the world. According to Otto, if consumers start avoiding Meta’s social networking applications or Google’s search engine, investors are more likely to raise their eyebrows with all this investment.
Evan Schlossman of SuRo Capital stated that there is pressure to speed up innovation. There is a rush to sort of fill the hole in AI because there is a new area that people think would be really useful.
