Four of the largest U.S. tech companies reported first-quarter earnings that beat expectations but saw stock prices diverge as they announced massive capital spending plans to fund an AI arms race. The results from Alphabet, Amazon, Meta Platforms, and Microsoft show strong top-line growth, yet investor focus has shifted to the ballooning costs required to compete in artificial intelligence, creating uncertainty for the sector.
"It looks like Google's taking market share across all these clouds," Brent Thill, a senior software analyst at Jefferies, told CNBC, pointing to the search giant as the big winner. "Google really stood out."
The four tech giants all topped Wall Street revenue forecasts on Wednesday. Alphabet reported revenue of $109.9 billion against a $107.2 billion estimate, while Meta posted $56.31 billion versus $55.55 billion expected. Microsoft’s revenue hit $82.9 billion, beating the $81.5 billion forecast, and Amazon’s sales reached $181.5 billion, comfortably ahead of estimates. Despite the beats, Meta’s stock fell more than 6% in after-hours trading and Amazon’s pulled back about 5%, while Alphabet climbed over 4%.
The divergence highlights the central tension for investors: a costly AI buildout that promises future growth but pressures near-term profitability. The primary driver of concern is a sharp increase in capital expenditure guidance. Meta raised its full-year spending outlook by $10 billion to a range of $125 billion to $145 billion. Alphabet lifted its 2026 capex forecast to between $180 billion and $190 billion and warned of a “significantly” higher figure in 2027, signaling a prolonged investment cycle to meet AI-driven demand.
The Great Cloud Divide: Google Gains on Rivals
The battle for cloud computing dominance is intensifying, with AI services becoming the primary growth driver. Google Cloud was the standout performer, reporting a 63% year-over-year revenue increase to $20.02 billion, smashing the $18.05 billion consensus estimate. The growth suggests Google is capturing business from its larger rivals.
In comparison, Microsoft’s Intelligent Cloud segment, which includes its Azure platform, saw revenue grow 40% to $34.68 billion. Amazon Web Services (AWS), the market leader, posted the slowest growth of the three, with revenue rising 28% to $37.59 billion. Alphabet CEO Sundar Pichai noted the company is "compute constrained in the near term," suggesting its cloud revenue could have been even higher if it had more capacity to meet demand. The company's cloud backlog nearly doubled from the previous quarter to $460 billion.
Capex Concerns Outweigh Strong Results
The after-hours stock declines for Meta and Amazon underscore investor anxiety about the escalating costs of the AI arms race. Meta’s increased spending plans eclipsed its strong earnings beat, where adjusted earnings per share of $10.44 far exceeded the $6.68 consensus. The company attributed the higher capex to costlier hardware and data center expenses needed to build out its AI capabilities, including its new Meta Superintelligence Labs.
Similarly, Amazon issued a softer-than-expected operating income outlook for the second quarter, with the midpoint falling below analyst estimates. This overshadowed a strong first quarter where net sales grew 17%. The spending commitments from all four hyperscalers indicate that the massive investments in servers, data centers, and custom chips from companies like Nvidia are set to continue accelerating, forcing investors to weigh the long-term potential of AI monetization against the immense and immediate costs.
This article is for informational purposes only and does not constitute investment advice.
