Big Technology may be defeating banks for AI, but investors love it

(Reuters) – Big Tech is spending more on artificial intelligence than ever before, but returns are also rising, with investors buying.

Once that momentum is maintained, Microsoft, Alphabet and Amazon are increasing spending to alleviate capacity shortages that limit the ability to meet rising demand for AI services, even after spending billions of $200,000.

The results still provide clear indication that AI is emerging as a major growth engine, but the monetization journey is still in its early days, investors and analysts said.

The bright commentary highlights that the surge in demand for new technologies protects the tech giant from the tariff-driven economic uncertainty that harbors other sectors.

“As companies like Alphabet and Meta compete to fulfill their AI promises, capital spending is surprisingly high and will continue to be promoted in the near future.”

But if their core business remains strong, “it provides the confidence that they will buy more time with investors and that billions will be spent on infrastructure, talent and other technology-related expenses,” she added.

Microsoft's shares rose 4% on Thursday, with the Windows manufacturer's market value exceeding $4 trillion – milestone-only chip giant Nvidia (NVDA.O) reached before that.

Meta has risen further, with 11.3% adding around $200 billion to its market value of around $1.75 trillion. Amazon has slipped the aftermarket at 7% after gaining 1.7% on regular trading and then 1.7% on disappointing cloud computing results.

All companies face intense scrutiny over investors' balloon capital expenditures, and were forecast to total $300 billion this year ahead of the latest revenues.

And up until a few days ago, the epic seven stocks were also chasing the S&P 500 (.SPX) at their first performance of the year.

Shut up doubts

Microsoft said Wednesday it would spend a record $30 billion in the current quarter after exceeding expectations of its revenue and estimated forecasts for its Azure cloud computing business.

From Donald Trump's plans to boost US bots to Elon Musk, who will be making deals with Samsung, this is AI every week.

This forecast could potentially outperform Microsoft's rivals over the next year. It comes after Google-Parent Alphabet fell below revenue expectations and raised its spending forecast from $10 billion a year to $85 billion.

Microsoft also disclosed the first time its dollar count for Azure Sales and the number of users for its Copilot AI tool.

Azure generated more than $75 billion in sales in last fiscal year, but Copilot Tools said it had more than 100 million users. Overall, around 800 million customers use Peppered Ai Tools in Microsoft's vast software empire.

Cloud revenue growth is expected to speed up to strong AI demand
“It's kind of a consequence to rapidly silence doubts about cloud and AI demand,” says Josh Gilbert, Etro market analyst. “Microsoft is more than justifying spending.”

Amazon said it expects to spend late on almost the same clip as the second quarter, totaling $31.4 billion, suggesting it would spend around $118 billion over the course of a year. Analysts had forecast approximately $100 billion.

Other AI companies are also attracting large numbers of users.

Last week, Alphabet said that the Gemini AI Assistant app has over 450 million active users each month. Openai's ChatGpt is an application recognized to launch generative AI Frenzy, with around 500 million active users each week.

Meanwhile, Meta has raised the bottom edge of its annual capital expenditure forecast to $2 billion, up from $66 billion to the $720 billion range. He also said efforts to keep up with Silicon Valley's intensifying AI race will boost the 2025 expense growth rate beyond the 2025 pace.

However, sales growth exceeding expectations from April to June and revenue forecasts for the quarter have assured investors that the strength of the social media giant's core advertising business can support large spending.

“The Big Boys are back,” said Brian Mulberry, portfolio manager at Zacks Investment Management. “This simply proves that at this point the epic Seven is still grand.”