Microsoft, Alphabet, Meta: Rising Investments in AI

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Key Takeaways

1Microsoft exceeded expectations with revenue of $82.9 billion but saw its stock drop after raising its capital expenditure forecasts.

2Alphabet reported a 63% growth for Google Cloud but also increased its capital expenditure forecasts for 2026.

3Meta posted a 33% growth in revenue while raising its capital expenditure forecasts due to increased costs for data centers.

💡Why it matters — These tech giants are betting on AI infrastructure, but rising expenses are raising concerns among investors about future profitability.

Microsoft: Azure Surpasses Expectations but Worries Investors

Microsoft recently reported financial results that significantly exceeded analysts' forecasts. The tech giant recorded revenue of $82.9 billion, marking an 18% increase from the previous year. A major point of interest for investors was the performance of Azure, Microsoft's cloud service, which showed an impressive growth of 40% in constant currency, surpassing expectations that ranged between 37% and 38%. This performance was praised by analysts, with initial estimates from CNBC and StreetAccount at 38.8% and 39.3%, respectively.

In parallel, Microsoft's annual revenue related to artificial intelligence surpassed $37 billion. Cloud revenue for the quarter reached $54.5 billion, a 29% increase, while commercial performance obligations surged by 99% to reach $627 billion. Satya Nadella, Microsoft's CEO, highlighted what he calls "the era of agentic computing," emphasizing the company's strategic direction towards increasing demand for enterprise AI.

However, despite these positive results, CFO Amy Hood announced an upward revision of capital expenditure forecasts for fiscal year 2026, raising them to $190 billion, well above the $154.6 billion anticipated by analysts. Capital expenditures for the quarter reached $31.9 billion, a 49% increase from the previous year. This announcement caused Microsoft’s stock to drop by over 3% in after-hours trading, reflecting investor concerns about rising expenses. Management expects continued growth for Azure in the fourth quarter, with forecasts of 39% to 40% in constant currency, indicating anticipated acceleration in the second half of the year as data center capacity increases.

Alphabet: Google Cloud Expands, but at What Cost?

Alphabet also announced impressive financial results, recording its highest quarterly revenue growth rate since 2022. Total revenue increased by 20% year-over-year, with Google Cloud leading the way, showing a growth of 63%. This performance significantly exceeded analysts' expectations, supported by the growth of Google Cloud Platform in enterprise AI solutions and infrastructure. Net income for the quarter reached $62.57 billion, or $5.11 per share, up 81% from the previous year.

During the earnings call, CEO Sundar Pichai acknowledged that the company is "constrained by short-term capacity," a statement that seems to indicate that demand is outpacing Alphabet's current ability to build quickly. As a result, Alphabet revised its capital expenditure forecasts for 2026 to a range of $180 billion to $190 billion, up from a previous estimate of $175 billion to $185 billion. CFO Anat Ashkenazi also stated that capital expenditures for 2027 are expected to "increase significantly" compared to 2026.

Meta: Strong Growth Masked by Rising Expenses

Meta reported first-quarter revenue of $56.31 billion, exceeding analysts' estimates of $55.45 billion. This performance represents a 33% growth compared to the previous year, the strongest quarterly growth since 2021. Earnings per share (EPS) stood at $6.79, slightly below the consensus of $6.82. Mark Zuckerberg described this quarter as a "pivotal quarter" for the company.

However, the situation becomes complicated with capital expenditure forecasts. Meta raised its 2026 forecasts to a range of $125 billion to $145 billion, up from a previous estimate of $115 billion to $135 billion. This revision is attributed to higher costs for components and data centers. First-quarter capital expenditures amounted to $19.84 billion, below analysts' estimates of $27.57 billion, which was initially perceived positively before the full-year increase was announced.

Meta's advertising business, Advantage+, continues to play a crucial role in generating short-term revenue through AI infrastructure. The 33% revenue growth suggests that this system remains effective. However, the question remains as to whether the advertising business can sustain capital expenditure commitments that now rival the GDP of a small nation.

AWS: Record Growth Despite Challenges

Amazon also reported solid financial results, with AWS revenues reaching $37.59 billion in the first quarter, up 28% year-over-year. This performance exceeded analysts' expectations of $36.64 billion and represents the fastest growth rate in 15 quarters. Operating income reached $14.2 billion with a margin of 37.7%, well above the StreetAccount consensus of $12.84 billion.

CEO Andy Jassy highlighted that Amazon's chip business has surpassed a revenue rate of $20 billion, recording triple-digit year-over-year growth. This indicates that AWS's investment in custom silicon with Trainium and Inferentia is beginning to yield significant scale. Amazon also announced new AWS partnerships with OpenAI, Anthropic, Meta, NVIDIA, and Uber alongside the results.

Amazon's total revenue for the quarter reached $181.5 billion, up 17%, with a net income of $30.3 billion.

A Shifting Market Dynamic

The combined results of these four tech giants present a coherent picture: investments in AI infrastructure are generating significant revenue acceleration in the cloud sector. Azure, Google Cloud, and AWS show respective growth rates of 40%, 63%, and 28%, justifying the scale of investments for now.

A recurring theme during the calls is the constraint of demand relative to supply. Microsoft explicitly mentioned capacity, while Sundar Pichai from Alphabet highlighted a similar dynamic. AWS has observed this trend for two quarters. This issue contrasts with earlier investor fears, who worried about a scenario where infrastructure would be built without customer follow-through.

The question now concerning the market is not whether AI generates revenue, but rather the trajectory of capital expenditure commitments, all of which were raised during this announcement. Microsoft's forecast of $190 billion for the entire year and Alphabet's indication that 2027 will be even higher are figures that caused stocks to drop despite solid operational results.

The supercycle of AI infrastructure spending is far from over. The calls this evening confirm that it is still accelerating, and the companies leading it firmly believe that demand will eventually catch up with supply.