Why Big Tech earnings are a crucial report card for the AI boom and its future
· Fortune
Fortune’s Morgan Chittum here. Like death and taxes, one thing is inevitable: Wall Street will take every chance it gets to look for cracks—or signs of strength—in the AI return on investment. At least, that’s how it’s been since ChatGPT took off in 2022 and AI became one of the biggest investment themes in recent history. The market’s latest North Star? Big Tech earnings.
This week, Amazon, Alphabet, and Microsoft gave us a fresh look. It was a mixed bag, but two things were clear: AI demand is hot, and spending on it is monstrous.
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Alphabet especially was in the public markets crosshairs: The Google giant’s results showed why a booming cloud division isn’t always enough. Google Cloud revenue more than doubled in the third quarter, while capital expenditures reached $51.4 billion. But earnings and revenue still missed, sending shares down Thursday almost 13% and erasing $500 billion in market value.
As Fortune’s Amanda Gerut wrote:
Investors are concerned about sluggish growth in Google’s search business, amid fears it might be swallowed up by “AI cannibalizing the franchise,” Wagner wrote. Google Search rose 12% to $63.4 billion, a marked slowdown from 17% growth in the second quarter and 19% in the first. Analysts were expecting the search business to grow 15%.”
Still, Alphabet CEO Sundar Pichai called it a “strong quarter,” pointing to a half-trillion-dollar annual revenue run rate. Nevertheless, it was historic as the worst trading day in the company’s history.
Meanwhile, late Thursday, Amazon shares dropped roughly 7% after earnings and revenue missed analysts’ expectations. Aggressive AI spending pushed the e-commerce giant’s free cash flow into negative territory for the second consecutive quarter.
As Fortune’s Sebastian Herrera reported:
The results showed that demand for Amazon’s cloud services, particularly those tied to AI, remains high. But the Seattle-based company is also continuing to spend at unprecedented rates to keep up, and performance of non-cloud businesses are weakening. On Thursday, Amazon reiterated that it expects its 2026 capital expenditures to be about $220 billion.
The company’s advertising business grew 12% year over year in Q3, missing analyst expectations, and its projected holiday-quarter operating profit is below Wall Street estimates. The heavy AI infrastructure spending also pushed its free cash flow deeply negative; the company said free cash flow swung from positive $14.8 billion to negative $42.4 billion over the past year.
A day before that, Microsoft offered a brighter picture. The software giant delivered a top and bottom line beat. Azure’s 48% revenue growth gave investors reason to cheer despite enormous AI-related costs. Shares rose about 4% in extended trading on Wednesday.
As Herrera also reported:
Microsoft investors have been eager to see Azure continue to grow at a high clip and for the company to prove that its AI bets, such as its Copilot assistant, are generating solid revenue. Both are important metrics because they show whether Microsoft, and the AI industry in general, is sustaining demand, especially as tech giants spend gobs of cash on building data centers.
On Wednesday, Microsoft Chief Financial Officer Amy Hood said in a call with analysts that 2026 calendar-year spending on capital expenditures would reach about $170 billion, with the company expecting CapEx to exceed $50 billion during the current quarter. Microsoft said that its first-quarter CapEx reached $45.2 billion, higher than the previous quarter but less than what analysts predicted. Hood said the figure reflected some delays the company had seen in expected third-party capacity deliveries.”
“We still have demand that exceeds supply,” Hood said.
It seems like the next test will come on Monday, when Apple releases results. And Wall Street will be looking for the same thing: evidence that the AI boom can deliver more than a massive bill.
This story was originally featured on Fortune.com