Three of the nation's biggest tech giants spent nearly $80 billion last quarter on data centers and other networks for artificial intelligence. And executives for Microsoft, Meta and Google say they're just getting started.
Investors had differing reactions to this historic spending spree reported in discussions of quarterly results this week. Meta's stock, for example, fell 11% on Thursday, while Microsoft's was down 2%. Shares for Alphabet, Google's parent company, rose 5% — after an initial drop in early trading.
Analysts said Wall Street’s mixed reaction reflects a growing sense of edginess among investors about whether this spending is warranted, and how quickly it will yield returns.
In short, big tech is under growing pressure to prove the benefits of these massive AI investments.
“Clearly, we’re seeing mixed reactions, but in general they make a whole lot of sense,” Angelo Zino, an analyst at CFRA research, told CoStar News. “Alphabet provides the clearest path to monetizing AI in lots of ways."
Alphabet is one giant tech firm pouring tens of billions of dollars into AI development, upping its estimates for capital expenditures this year to as much as $93 billion, an increase from $52.5 billion in 2024. Growth in the company’s digital-advertising and cloud-computing units are helping finance — and justify — the company's record spending on data centers, some analysts say.
“We’re seeing AI now driving real business results across the company," Google CEO Sundar Pichai in a blog post, adding that the firm reported a record $15.2 billion in quarterly revenue, up 34% from the same quarter last year.
But episodes of technology exuberance from past decades that left some investors battered have not been forgotten.
Demand to outstrip supply
The race to develop AI has boosted Google’s cloud division, a seller of computing power to data centers. Meta, meanwhile, does not have a cloud division, "so it's not going to get instant revenue from all this spending," Zino said.
Shares of Meta fell as investors responded to the Facebook parent's AI spending plans. The firm raised capital expenditures for 2025 to $70 to $72 billion and said 2026 would entail “notably larger” AI spending.
"They are spending more than the street wants them to spend, and that’s why the street’s not happy with them right now," Zino said.
CEO Mark Zuckerberg defended the strategy on this week’s earnings call, repeating the line of other tech executives that the risks of not spending to keep up with growing demand for AI computing power amounts to a bigger risk than over spending.
Microsoft's stock dipped, even after the company beat analyst profit estimates and posting a 40% jump in earnings at its key Asure cloud computing unit. The company reported capital expenditure of $35 billion in the last quarter, a 74% jump from last year and $5 billion more than expected. About half that went to pay for short-term assets such as Nvidia chips to relieve capacity bottlenecks in its cloud business.
Microsoft Chief Financial Officer Amy Hood predicted capital expenditure growth for fiscal 2026 to be even higher than 2025, a change from what the company told investors last quarter.
“They expect demand to outstrip supply for a pronounced period of time,” said Zino.
Microsoft is now valued at more than $4 trillion following a restructuring that gives it a 27% holding in ChatGPT creator OpenAI, the largest single stake in the AI pioneer.
Growing into the development boom
For some, the feverish spending on AI and the circuitous nature of some of the big deals between Nvidia, OpenAI and others have conjured up memories of the dot-com bubble of the late 1990s, when the adoption of the internet did not happen as fast as some early internet evangelists predicted.
Statistics from the early internet years claimed traffic was doubling every 100 days, but later research showed that traffic was doubling about every year.
This initial estimate in part led to an overinvestment in fiber-optic lines that left behind a glut of “dark fiber.” By some estimates, 85% to 95% of those cables went unused after the bubble burst.
There's a similar "gold rush climate" taking hold these days with the push to be at the forefront of the real estate needed to power artificial intelligence, according to Howard Huang, a market intelligence analyst at Avison Young’s San Francisco office who tracks data centers.
Even OpenAI CEO Sam Altman has made it clear that his firm is not expected to turn a profit anytime soon, as it focuses on training the latest ChatGPT models and expanding its access to the processing power needed to do so. Altman said following the release of the latest version of ChatGPT in August that OpenAI should concentrate on expanding processing power, even if it means delaying profitability.
Individuals are flocking to AI, but most are using free versions, analysts say, while investors are racing to invest more money to build chips to power the colossal network of data centers expanding across the country.
Still, technology executives maintain that demand is still far outpacing supply when it comes to the data center buildout — and it pays off to be ahead in the race toward superintelligence.
"I think it's the right strategy to aggressively front-load building capacity so that way we're prepared," Zuckerberg told analysts during a Wednesday earnings call. "In the worst case, we would just slow building new infrastructure for some period while we grow into what we build."