Big Tech Wrap-up

Wall Street Wants Receipts

Tech earnings received a mixed reception at a time when stock valuations are stretched.

• Amazon and Microsoft were rewarded with share price spikes because they showed clear evidence that AI demand is driving cloud sales today.
• Alphabet came into the earnings on the back of an 80% 12-month rally. Despite stellar numbers, the stock fell initially by 7%. Investors were spooked by ballooning capital expenditure (capex). But when rivals reported a week later, Alphabet recovered all losses and more.
• Meta shares tumbled 8%. Its revenue forecast disappointed and free cash flow collapsed 91% year on year to just under $800 million.

Free cash flow is what a company has left over after paying for its day-to-day operations and capital spending.

Head in the Clouds

The biggest cloud service providers all reported accelerating growth as companies rushed to rent computing power for AI. Google Cloud revenue jumped 82% year on year, Microsoft’s Azure grew 43%, and market leader Amazon Web Services rose 37%, its fastest growth in years.

This implies the demand from the AI era is very real.  

Some investors and analysts have expressed worries that big tech is building more data centers than anyone would use. So far, those fears have not been realized. But the next question is whether cloud providers can generate enough revenue and profit to justify the hundreds of billions they're spending to keep up with demand.

Historic Spending Spree

The big four hyperscalers — mega-spenders and builders in computing power — are still expected to pour more than $700 billion into new data centers and high-end chips this year. This astronomical spending spree is keeping economies and markets afloat during an energy crisis and trade disputes.

Capital expenditure 2026 plans:

• Amazon lifted plans to $220B from $200B.
• Alphabet now expects up to$205 billion vs. old forecast of up to $190B
• Meta tweaked its spending plans upwards to $130-145B, from the previous lower range of $125B
• Microsoft lowered its forecast to $175 billion, down from $190B after extending the useful life estimates of data centers from 15 to 25 years. But this was due to an accounting shift, not budget cuts.

Catching Up on AI, Cloud

Investors are willing to tolerate mind-boggling spending if the AI machine is paying for itself. Meta does not have the benefit of an up-and-running cloud business that would pay back some of the huge investments — although it plans to launch one.

Meta's core business is still advertising. Over 12 months, it’s the worst performer of hyperscalers, with shares down nearly 20%.

CEO Mark Zuckerberg argues AI is already improving recommendations and boosting ad targeting on its social media platforms Facebook and Instagram. But he is also spending aggressively on chatbots, AI agents, custom chips, and smart glasses, playing catch-up with rivals.

Apple Takes a Hit from Others’ Spending

Apple is the odd one out. It isn't spending hundreds of billions on AI infrastructure. It has some AI products, but they mainly rely on Google’s Gemini. Unlike its rivals, it doesn’t release a spending forecast. In 2025, its capital expenditure was just under $13 billion.

Apple is primarily a hardware company, with iPhone still the main sales driver. This exposes it to the collateral damage from the AI build-out. Advanced memory chips have become a scarce commodity, with prices skyrocketing. Outgoing CEO Tim Cook warned that the constraints are becoming "very significant."

This sent shares down 7%. It has been competing with Nvidia for the title of the most valuable company in the world.