The technology market is excited about the new chapter in artificial intelligence, which has seen a surge this quarter. Investors have been placing billion-dollar bets on companies in the sector, and there is optimism about the financial returns. Now, companies are entering a new investment cycle as they seek to meet the exploding demand for AI.
Economic uncertainties are challenged by the growth of investments in AI
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, Meta META.O, and Alphabet GOOGL.O.
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, 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.
Stock growth boosts investor confidence
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 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.
The significant growth in Microsoft and Meta shares is more than a response to quarterly results; for investors, it represents an important validation of the strategy adopted for AI investments. Despite the expenditures, these companies are positioned to capture sustainable value over the long term.
Microsoft is leading the AI race
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.
Microsoft’s investment pace for the next quarter will accelerate, with the company planning to invest $30 billion as it seeks to lead the AI race. The company signals to the market that investments will not only continue but will be vital to maintaining its competitive advantage.
New era for Big Tech with the monetization of AI
It’s still too early to accurately measure the long-term effects of AI, but signs point to the investments that will generate a transformation in the sector. Companies are already reaping these initial benefits, and this is a positive scenario for continued high investment. We hope to see a balanced scenario between high spending and consistent growth, so that this market can continue to function.