Big Tech is spending more than ever on artificial intelligence – but the returns are rising too, and investors are buying in.
AI played a bigger role in driving demand across internet search, digital advertising and cloud computing in the April-June quarter, powering revenue growth at technology giants Microsoft (MSFT.O), opens new tab, Meta (META.O), opens new tab, and Alphabet (GOOGL.O), opens new tab.
Betting that momentum will sustain, Microsoft and Alphabet decided to ramp up spending to ease capacity shortages that have limited their ability to meet soaring AI services demand, even after several quarters of multi-billion-dollar outlays.
The results offer the clearest sign yet that AI is emerging as a primary growth engine, although the monetization journey is still in its early days, investors and analysts said.
The upbeat commentary also bodes well for Amazon.com (AMZN.O), opens new tab, the largest U.S. cloud provider, which will report earnings on Thursday after markets close, and underscores how surging demand for the new technology is shielding the tech giants from tariff-driven economic uncertainty hobbling other sectors.
“As companies like Alphabet and Meta race to deliver on the promise of AI, capital expenditures are shockingly high and will remain elevated for the foreseeable future,” said Debra Aho Williamson, founder and chief analyst at Sonata Insights.
But if their core businesses remain strong, “it will buy them more time with investors and provide confidence that the billions being spent on infrastructure, talent and other tech-related expenses will be worthwhile,” she added.
Microsoft shares rose more than 6% on Thursday, with the Windows maker crossing $4 trillion in market value – a milestone only chip giant Nvidia (NVDA.O), opens new tab had reached before it.
Meta was up even more, rising 12.2% to a record high and on course to add around $200 billion to its market value of about $1.75 trillion. Amazon gained about 1%.
All the companies have faced intense scrutiny from investors over their ballooning capital expenditures, which were expected to total $330 billion this year before the latest earnings.
And until a few days ago, the Magnificent Seven stocks were also trailing the S&P 500 (.SPX), opens new tab in year-to-date performance.
SILENCING DOUBTS
Microsoft said on Wednesday it would spend a record $30 billion in the current quarter, after better-than-expected sales and an above-estimate forecast for its Azure cloud computing business showcased the growing returns on its massive AI bets.
The prediction puts Microsoft on track to potentially outspend its rivals over the next year. It came after Google-parent Alphabet beat revenue expectations and raised its spending forecast by $10 billion to $85 billion for the year.
Microsoft also disclosed for the first time the dollar figure for Azure sales and the number of users for its Copilot AI tools, whose adoption has long been a concern for investors.
It said Azure generated more than $75 billion in sales in its last fiscal year, while Copilot tools had over 100 million users. Overall, around 800 million customers use AI tools peppered across Microsoft’s sprawling software empire.
Source: https://www.reuters.com/
