Big Tech Spending Surpasses $1 Trillion on AI Infrastructure as Demand Outpaces Supply

Big tech spends more than $1 trillion on AI infrastructure -- additional $745 billion expected to be added to the figure in 2026 alone

Would these massive investments return an even greater profit? Amazon, Google, Meta, and Microsoft have spent more than a trillion dollars on AI infrastructure, including data centers, the chips inside them, and the power needed to run the facilities, since 2023. The Financial Times said that these four big companies have already hit $1.1 trillion in capital expenditure based on their latest earnings reports, and that an additional $745 billion is expected to be added to this figure just this year. "There is basically no end in sight for the growth in capex," RBC Capital analyst Rishi Jaluria told the publication. "Investors need these companies to toe the tight line between investing in AI and not compromising the things that have made them successful." This massive investment has upended several other industries -- namely electricity prices and memory and storage chips. The massive power demand that data centers have put on the power grid has forced many U.S. utility companies to spend billions of dollars to upgrade their respective infrastructure, which they then passed on to all consumers, not just the big ones that forced the upgrade. This, alongside other environmental issues, has caused many Americans to push back against data center projects near their communities. The White House instituted the "ratepayer protection pledge" and made AI hyperscalers, utility operators, data center companies, and individual states promise that they will protect the average consumer from electricity cost increases. But so far, no state has taken a step to codify this pledge into law. Oregon actually enacted the POWER Act, which resulted in a 30% increase in the power bill of users that consumed more than 20MW while slashing the bills of residents by 1.3%, but the state did this in 2025, way before President Donald Trump called the tech giants into the White House and told them to "pay their own way." The mountains of cash that these tech giants are pouring into AI are also affecting the memory and storage chip industry. Since these AI hyperscalers have a lot of liquidity from investors, they are willing to pay top dollar for the HBM they need to run their data centers. Because of this, it made sense for Micron, Samsung, and SK hynix to prioritize them over DRAM, especially as they can charge a premium for these chips and there are customers who are willing to pay at those prices. This resulted in a shortage of consumer memory that started in 2025 -- while this initially affected PC builders and enthusiasts, it has started to affect other industries that require memory as well, including cars and smartphones. Even Apple, which historically had huge sway over its suppliers, was forced to increase prices because of the shortages. Aside from skewing other industries, the massive CAPEX the big four are going into is alarming some experts, warning that the promises and contracts they're making are leading to "hidden debt" not listed in their balance sheets. The amount, worth around $1.65 trillion, is annotated in their quarterly financial statements as future obligations that will only come into play as the related asset or service comes online. The current value is 122% of the actual debt reflected on their balance sheets, which could give investors the wrong impression that they have fewer obligations than they actually have. While the amount of money that the big four are spending on AI might seem dizzyingly high, we must note that these companies are raking in massive amounts of cash quarterly themselves. Microsoft's latest quarterly revenue is $90 billion, while Meta made $60 billion in the same period. Alphabet (Google) announced revenue of nearly $120 billion, while Amazon made $200 billion. That is a total of nearly $470 billion for these companies in just the last quarter. Still, that does not mean that they can just keep on spending on AI. For example, even though Google's cloud business had a revenue of $11 billion last year, its price dropped after it announced that it spent more than it made last quarter -- the first time this happened in the 20 years since it went public. Meta is also planning to rent out its AI compute, apparently following in the footsteps of Amazon, Google, and Microsoft, which have growing cloud businesses. However, this announcement caused a drop in its stock price. "They are a bit all over the place," SLC Management managing director Dec Mullarkey told FT. "For investors it's no longer growth at any cost; they want to see the spending flowing through to results, like at the Big Three." Follow Tom's Hardware on Google News, or add us as a preferred source, to get our latest news, analysis, & reviews in your feeds.

Cloud giants pour nearly $600B into capex as AI demand surges

AI has turbocharged an already expanding cloud services market as organizations pour billions into online platforms offering the compute needed to train and run models, swelling the coffers of the established giants. Their latest results show revenue surging alongside capital spending as Amazon, Google, and Microsoft race to add capacity - at least until the AI bubble eventually bursts, of course. Biggest of them all, Amazon disclosed that its Amazon Web Services (AWS) division took in $42.2 billion during its second quarter, ended June 30, 2026. This was an increase of 36.7 percent year-on-year and its fifth consecutive quarter of accelerating growth. It seems like even CEO Andy Jassy could scarcely believe the cloud operator's fortunes, boasting that "AWS is now a $169 billion annualized revenue run rate business, which, for perspective, would place it 24th on the Fortune 500 list if it was a standalone company." Amazon is now upping its forecast for how much capex it will spend this year on expanding its infrastructure, including that needed for those AI workloads. "Earlier this year, we said we plan to invest approximately $200 billion in cash capex in 2026, the majority of which to support AI and AWS," Jassy told analysts on a conference call about its financials. "We now believe we will spend approximately $220 billion in cash capex in 2026, with the higher cost of memory pushing this number up from our prior estimate of about $200 billion. But even at that amount, we will still not have enough capacity to meet all the demand we have in 2026, and I believe this dynamic will also be true in 2027 too." "We've done this before in the first era of cloud computing, just over a longer time horizon, where demand built more gradually than it has with AI. But we see the margins and returns in AI tracking what we saw with core at the same point of evolution," Jassy claimed. Google is likewise upping its capex estimates for this year, coming close to Amazon's own massive investments. "We are updating our full year 2026 capex guidance range to $195 to 205 billion, up from our previous estimate of $180 billion to $190 billion. The increase in the range is primarily due to an acceleration in the delivery of capacity to meet growing demand," said Google and Alphabet's chief financial officer, Anat Ashkenazi, during its Q2 earnings call. The company expects this figure to rise significantly again next year, although it declined to be more specific at this stage. "In terms of expenses, the significant increase in our investments and technical infrastructure will continue to put pressure on profit and loss in the form of higher depreciation expense and related datacenter operations costs, such as energy. We also expect to continue hiring in key investment areas such as AI and cloud, and we are investing in marketing to support our AI products," Ashkenazi added. Cloud revenues at the Chocolate Factory were up 82 percent to $24.8 billion for the quarter, driven primarily by GCP, which grew faster than cloud overall, with Core GCP, AI solutions, and AI infrastructure all proving important drivers of growth, according to Ashkenazi. Despite the massive sums involved, she claimed in response to a question that Google just cannot add capacity fast enough. "While we have increased our capacity quite significantly over the past three years, the demand still outpaces that investment. And we are, just like the rest of the industry, working in a supply‑constrained environment, so we're working hard to do this." Microsoft reported commercial cloud revenue of $59.3 billion for the quarter ended June 30 (Q4 FY26), an increase of 27 percent over the same period last year, while revenue from Azure and other cloud services grew 43 percent. Microsoft put its expected calendar 2026 capex at approximately $175 billion, about $15 billion below the earlier figure. The change does not reflect a reduction in its planned infrastructure build-out, however, but a shift in accounting treatment as more future datacenter leases are classified as operating rather than finance leases. "Effective at the start of FY27, we are extending the estimated useful lives of our datacenters and office buildings, from 15 to 25 years, reflecting our operating history and expected use of these assets," explained EVP and CFO Amy Hood. "Outside of this useful life impact, our calendar year 2026 capex investment expectations remain unchanged. However, the shift from finance to operating leases adjusts our expectation to approximately $175 billion." More of Redmond's future datacenter leases will shift from finance leases to operating leases as a result of this update. Hood said Microsoft expects capex during the next quarter, Q1 FY27, to exceed $50 billion, including that lease reclassification impact from the useful life update. On paper, those forecasts add up to roughly $595 billion. They are not directly comparable, however: Amazon cites cash capex across several businesses, Alphabet's guidance covers the whole company, and Microsoft's figure reflects its treatment of leases as well as direct expenditure. Even with those caveats, the figures illustrate the extraordinary sums being committed to infrastructure as the cloud giants chase AI demand. Memory, GPUs, and even hard disks are all in short supply because of it, with shipments of PCs and smartphones falling because in many cases the makers simply cannot secure adequate supplies of memory to meet customer demand. It could be argued that one factor in cloud services growth is that enterprises are struggling to get the hardware they need to build out their own infrastructure, so are forced to turn to the cloud. AWS chief Andy Jassy made the same claim earlier this year, saying that shortages are "a further impetus pushing companies who have on-premises infrastructure into the cloud" as "suppliers are prioritizing their very largest customers, which cloud providers are." As Synergy Research revealed last week, enterprise spending on cloud infrastructure services passed $143 billion a quarter in Q2 of this year, a 43 percent increase on last year, and added up to $500 billion for the last 12 months. The question is, how long can it keep expanding at this rate? ®

Data-centre reality check could slam brakes on AI earnings boom: Joachim Klement

LONDON, Aug 5 (Reuters) - U.S. corporate earnings are already running almost 60% above trend, with rapid growth still expected for years, mostly thanks to the AI boom. But the questionable economics of new AI data centres could pop this bubble, sending earnings tumbling back toward their long-term average - generating significant losses for investors along the way. We are entering the tail end of Wall Street's second-quarter earnings season, and, as usual, the majority of companies have managed to beat already sky-high expectations. This is largely thanks to strong earnings growth, with S&P 500 earnings per share now at record highs. And analysts don't anticipate a slowdown. They expect S&P 500 earnings to grow faster than 27% in the next 12 months, driven largely by the so-called hyperscalers - including Alphabet (GOOGL.O), opens new tab, Microsoft (MSFT.O), opens new tab, Meta (META.O), opens new tab and Amazon (AMZN.O), opens new tab - as well as semiconductor giant Nvidia (NVDA.O), opens new tab, which are all benefiting from the AI boom. If that is correct, EPS would be more than 85% above trend next year and 100% above trend by the middle of 2028. Notably, earnings have never been more than 44% above trend since the end of World War Two. SHRINKING MOAT The problem with these earnings projections is that the business model of the hyperscalers driving them has materially changed in the last few years. In the past, these huge U.S. tech firms were capital-light businesses with large "moats" driven by high switching costs. This, in turn, helped them generate supernormal earnings for more than a decade without the dreaded mean reversion one would expect from increased competition. But now the hyperscalers ⁠have become highly capital-intensive businesses - due to the massive AI infrastructure spending spree - and sections of those moats have gotten a lot slimmer. This reflects the fierce competition across the AI value chain. Hyperscalers typically have long-term agreements with specific developers of large language models (LLMs), most notably Anthropic and OpenAI. Currently, LLM users appear willing to switch between AI platforms depending on the quality and cost. For example, when OpenAI's ChatGPT was overtaken in performance by Anthropic's Claude in March, users could switch with little friction, based on data from the Ramp AI Index about changes in AI spending share. Such consumer moves are expected to continue as AI rapidly develops, which will result in a shift in data centre load from one provider to another. This means that hyperscalers are either at the mercy of users' preference for one specific model provider, or they will have to compete with other data centre providers for the business of each new market leader. In the former case, their revenue growth will slow if their partner model falls behind. In the latter, their margins will shrink from increased competition. Alphabet may be in a somewhat advantaged position here, since it has its own competitive model that it can run on its own stack, though it currently appears to be getting more closely linked to Anthropic, based on reports from the Information in June. The result of all this may not just be negative free cash flow, which is already on the horizon (or already here, in certain instances), but negative net profits, unless the hyperscalers cut back their capex. And if they cut back ⁠on capex, we can expect a large drop in revenue for the semiconductor firms that have benefited from all this spending - and thus a decline in earnings in that part of the market. This is just one example of the co-dependencies among companies in the AI ecosystem. In its Annual Economic Report 2026, opens new tab, the Bank for International Settlements (BIS) analysed the revenue of hyperscalers and semiconductor companies, separating circular financing arrangements - where companies from different parts of the AI value chain are financing each other - from true arm's-length contracts. They found that in 2025, over half of hyperscalers' revenue and almost all of the chipmakers' revenue could be traced to circular financing arrangements. If that merry-go-round stops because hyperscalers cut back on capex or their margins shrink, earnings for the S&P 500 (.SPX), opens new tab overall could slip, potentially dropping back toward trend. TWO NUMBERS, MANY ⁠CONCERNS Such an earnings inflection is not inevitable. AI optimists and many equity analysts will argue that this technology will continue to grow exponentially, creating hundreds of billions of dollars in additional revenue that will justify hyperscalers' massive spending. This is entirely possible. After all, AI is revolutionising the world, and new use cases emerge with every model update. On the other hand, the cost of building data centres is skyrocketing, forcing most hyperscalers and many others to constantly increase their projected capex. Two numbers put the challenge of making money with newly built data centres ⁠in stark contrast. Nvidia CEO Jensen Huang recently estimated, opens new tab that the cost of building a 1-gigawatt data centre could soon reach $80 billion to $100 billion. This compares with an estimated $10 billion to $12 billion in revenue generated by a 1-GW data centre running AI models, as estimated by Cleanview, opens new tab, a market intelligence firm focused on U.S. power infrastructure, and Lancium, opens new tab, an energy tech and infrastructure company. If accurate, this means that it would take eight to 10 years for a newly built data centre to amortise its initial costs, let alone pay for operating expenses or make a ⁠profit. Clearly, this is longer than the reasonable life of a cutting-edge GPU or TPU. Taken at face value, that turns new data centres into a very unattractive proposition. If hyperscalers start to conclude that this is indeed the case, this could send today's entire investment boom into a tailspin. (The views expressed here are those of Joachim Klement, an investment strategist for Panmure Liberum.) Enjoying this column? Check out Reuters Open Interest (ROI),, opens new tab your essential new source for global financial commentary. Follow ROI on LinkedIn,, opens new tab and X., opens new tab And listen to the Morning Bid daily podcast on Apple, opens new tab, Spotify, opens new tab, or the Reuters app, opens new tab. Subscribe to hear Reuters journalists discuss the biggest news in markets and finance seven days a week. Writing by Joachim Klement Editing by Marguerita Choy and Anna Szymanski Our Standards: The Thomson Reuters Trust Principles., opens new tab * Suggested Topics: * ROI: Reuters Open Interest Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

Big Tech AI spending spree tops $1tn

The four big hyperscalers have ploughed more than $1tn into capital investments since their race to dominate AI began three and a half years ago, as America's largest tech groups bet their future on the technology. Combined capital spending by Google, Amazon, Microsoft and Meta from the beginning of the AI boom in 2023 to the end of June hit $1.1tn, according to earnings reports from the four companies in the past two weeks. The massive expenditure is a mark of both the scale of their AI ambitions and the speed with which the US tech giants have turned from capital-light businesses into huge investors in physical infrastructure. "There is basically no end in sight for the growth in capex," said Rishi Jaluria, an RBC Capital analyst. "Investors need these companies to toe the tight line between investing in AI and not compromising the things that have made them successful." The four companies combined plan to spend $745bn on capex, mainly data centres, advanced chips and the power to run them this year, after both Google and Amazon increased their projections this quarter. The success of this bet remains partly contingent on the ability of start-ups OpenAI and Anthropic to keep raising funds to meet vast, multiyear commitments to buy computing power, as both AI labs plot their public listings. The rush of investment has strained supply chains and driven up costs, causing a shortage of memory chips, which hurt Apple, even as the iPhone maker sits out the AI race. Its warnings of lower sales and margins due to cost increases sent the stock falling 6.3 per cent on Thursday. But Big Tech's financial results showed these investments are beginning to translate into accelerating revenue growth, particularly in cloud computing. Google, Amazon and Microsoft all reported rising growth in their cloud units, selling computing power to everyone from OpenAI and Anthropic to corporations embracing AI. The figures boosted Amazon and Microsoft stock. Meta, which does not have a cloud business, said AI was helping it to target advertising, with total revenue up 28 per cent year-on-year to $61bn in the quarter. CEO Mark Zuckerberg hinted at a leap into leasing out data centre space, telling investors that Meta was fielding "a large number of offers" to rent out its compute "at a meaningful premium over what we paid". He added, however, that "there will continue to be a significantly higher margin on selling intelligence rather than selling compute directly". Dec Mullarkey, managing director at asset management firm SLC Management, said the lack of a clear plan from Meta to rent out computing power was partly responsible for its 8 per cent share price decline on Thursday after earnings. "They are a bit all over the place," he said. "For investors it's no longer growth at any cost, they want to see the spending flowing through to results, like at the Big Three," he said, referring to Google, Microsoft and Amazon. The search giant's cloud business added $11bn of revenue on last year's sales, but investors still sold off shares as it reported its first quarter burning cash since going public over two decades ago, posting negative $6bn of free cash flow for the period. Google, like its peers, also disclosed huge increases in its future financial commitment linked to AI investments, which ballooned by about $500bn from three months before. The bulk of the new contracts involve long-term purchase commitments for technical infrastructure, as well as energy for data centres. Meta signed $233bn of new commitments in the quarter. The additions include $96bn in leases for data centres and network infrastructure that will move on to its balance sheet as they come into use, $112bn in purchase commitments, mostly for third-party cloud capacity servers, and other infrastructure, as well as $25bn in new debt. The group then added another $68bn in data centre leases in July. Microsoft, meanwhile, signed more than $130bn of new data centre leases in the second quarter in a huge expansion of its commitments. Together the three companies agreed close to $900bn of new AI-related obligations in the three-month period alone, binding their balance sheets to the AI race for years to come. Amazon has yet to post these detailed disclosures. Several top executives acknowledged to analysts that the outlay on AI would continue to sap free cash flow in coming quarters. The free cash flow metric is closely watched as a measure of the cash companies have left to service debt or return to shareholders after covering their operating costs and capital spending. The four groups' combined free cash flows fell to a decade low of just $7bn during the period, with only Microsoft and Meta bringing in more than they spent. Amazon chief Andy Jassy told investors that the group would have to absorb free cash flow pressures for some time as it raced to build "many data centres simultaneously" with a two-year lag from commissioning a facility to installing servers that enabled it to charge customers. "In the short term . . . we'll spend a lot of capex and encounter free cash flow headwinds until these data centres come online," he said. The significant lag between Big Tech's massive upfront data centre investment and any associated revenue means that investors who have proven fickle in recent weeks amid an AI-led rout will have to be prepared to wait years for meaningful returns on their investment. "Investors are being forced to rethink their own timelines," Jaluria at RBC added.

Dwindling cash and soaring memory costs: Tech's AI buildout has ballooning price tag

Apple issued a weaker-than-expected revenue forecast for the current quarter due to supply constraints that are forcing the company to raise prices. Almost four years into the artificial intelligence boom, the world's biggest tech companies are still making grand promises about the future. The problem is, they're burning through their cash in the process. AI spending among the megacaps is projected to reach $765 billion this year, before rising to nearly $1.2 trillion in 2027, according to Goldman Sachs. Amazon boosted its capital spending forecast for the year on Thursday to $220 billion, the highest among the four hyperscalers. Amazon also reported negative free cash flow for the trailing 12 months of $7.6 billion, a day after Meta disclosed a 91% drop in cash generation from a year earlier. Last week, Alphabet said cash flow turned negative for the first time on record, a stunning development for one of the most profitable companies on the planet. Alphabet finance chief Anat Ashkenazi told analysts on the earnings call that free cash flow will remain under pressure as the company seizes on the "AI opportunity." With tech earnings season largely wrapping up this week -- Nvidia is set to report on Aug. 26 -- it's become readily apparent that AI investments are distorting balance sheets, even as industry leaders continue to tout the future benefits of their mammoth bets on new data centers, and the chips and systems that populate them. One big reason that costs are rising more than previously expected is the memory crunch, caused by insatiable demand for AI processors that rely on memory supplied by a small set of vendors. Tesla CEO Elon Musk described memory pricing as "insane" on the automaker's earnings call last week, and Amazon CEO Andy Jassy said the "inflated price" of memory chips drove his company's capex guidance higher. Apple, which is spending far less than its Big Tech peers, is particularly susceptible to the memory crisis because the technology is a key piece of every consumer device. Apple has already raised prices on Macs and iPads, and many analysts expect iPhone price hikes later this year. On Thursday, the company issued a weaker-than-expected forecast due to what CEO Tim Cook called "supply constraints." It's not a problem he expects to ease up this year. "If you look beyond September, we see the market pricing for memory continuing to increase, which could drive an increasing impact on our business," Cook, who's stepping down as CEO on Sept. 1, said on the earnings call. "And we're continuing to evaluate this." For Apple, memory is a revenue problem, as the company prepares for weaker consumer demand due to higher prices. But for the hyperscalers, it's becoming a huge cost hurdle as prices soar for the memory-hungry AI systems that they all buy from Nvidia. Musk went so far as to thank memory vendor Micron for giving the company "a very significant allocation on reasonable terms." Investor reactions to the reports varied dramatically. Tesla and Alphabet both sank last week as they turned cash flow negative and pointed to accelerated spending. Meta plummeted following its report on Wednesday due to a weak forecast and continued uncertainty surrounding its AI monetization strategy. Microsoft, meanwhile, had its best day on the market since 2008 as it coupled better-than-expected results with increased capex guidance. "MSFT has room to meaningfully re-rate," Wells Fargo analysts, who recommend buying the shares, wrote in a note to clients. The rally cut Microsoft's stock drop for the year to about 7%. Apple shares slid following its Q3 print as the memory shortage weighed on its outlook, while Amazon's surging cloud growth was a major catalyst for the online retailer's stock pop. "Not only is the revenue growth dramatic, but the profitability is rising," Mark Mahaney, an analyst at Evercore ISI, told CNBC's "Closing Bell: Overtime" after the report. Mahaney said the growth rate for Amazon Web Services had been lagging Microsoft Azure and Google's cloud business, and that "this is just the breakout that the stock needed." Wedbush analysts said in a Friday note that Amazon's report was the "cleanest beat" among the hyperscalers it covers, while management offered the clearest explanation of how it will achieve returns on its capex spend. "This clean beat and walk through are the factors in our view on the different share reaction between GOOGL and AMZN on what we view as similarly strong fundamental prints with raises in capex," the analysts wrote. But across the megacap landscape, none of the stocks -- unless you include Micron -- are having breakout years, despite healthy revenue growth. The muted market moves reflect growing skepticism over whether the massive AI buildout, fueled increasingly by debt, will ultimately pay off. Then there's the China conundrum. In recent months, a slew of Chinese AI labs have released new and updated AI models that are narrowing the performance lead held by OpenAI and Anthropic at much lower prices, playing into a popular trend as corporate America gets more frugal when it comes to spending on AI services. The so-called open-weight models can be downloaded, tweaked and hosted on whatever infrastructure the user chooses. With so much of the AI market built around OpenAI and Anthropic, which are both valued at close to $1 trillion on the private market, any potential threat to their business presents risks to the AI trade as a whole. In a report last week, Dana Harlap, investment strategist at JPMorgan Chase, asked the rhetorical question, "Is it all one big AI trade?" Harlap said the reaction to Google's report shows that Wall Street is scrutinizing spending. That's true even when companies beat revenue estimates, which Google did while reporting 82% cloud growth. "We're seeing the market become more critical -- and more discriminating -- ­across hyperscalers as investors try to separate AI winners from losers," Harlap wrote. "Long-term, the success (or failure) of the hyperscalers to generate an acceptable return on investment on their heavy capex investments will likely be correlated with the returns of the AI ecosystem." Choose CNBC as your preferred source on Google and never miss a moment from the most trusted name in business news.

Big Tech's A.I. Spending Keeps Rising. So Do the Jitters.

Karen Weise, who covers Amazon and Microsoft, has visited data centers around the country to report on the building boom. Tech giants are setting records every few months for how much they are spending on artificial intelligence -- but this time, some jitters are also growing. On Thursday, Amazon said its capital expenditures totaled $53 billion in the second quarter, up 69 percent from a year earlier, as it built A.I. data centers and other infrastructure. It joined a parade of other big tech companies, with Meta on Wednesday reporting that its costs had risen 55 percent from last year, while Microsoft said its capital expenditures had soared 69 percent. Last week, Google also disclosed that its costs had jumped and said it would boost its spending further. These numbers are only set to skyrocket. Across this year and next, Amazon, Google, Meta and Microsoft are expected to spend a staggering $1.5 trillion building data centers and stuffing them with advanced chips, according to Wall Street estimates compiled by FactSet. "The scale of it is nuts," said Melissa Otto, who leads research at S&P Global's Visible Alpha division. Alarms are rising as Wall Street and others question whether this spending can be justified. On Thursday, shares of Microsoft, which did not change its spending forecast, jumped more than 15 percent, but Meta's stock sank more than 7 percent after it revealed its A.I. outlays and that costs were growing faster than its revenue. And last week, for the first time since going public in 2004, Google said it had "negative free cash flow," which meant it was spending more on day-to-day operations and building new infrastructure than it was taking in from its businesses. Google's stock fell more than 6 percent the next day. Even so, the companies insist they are doing the right thing. "As long as we see these attractive opportunities to invest, we will continue to invest," Anat Ashkenazi, Alphabet's finance chief, told Wall Street analysts last week. More than a dozen years ago, tech companies became the largest enterprises on the planet, fueled by their software and digital businesses. But A.I. has flipped tech's "asset-light" model on its head. Multibillion-dollar data centers, which the industry likes to call "A.I. factories," have become critical investments for developing advanced systems and making them available to customers. From April through June, capital expenditures by the four companies totaled $170 billion, up 72 percent from a year earlier. The figures are ballooning -- and projections keep rising every three months -- as the companies race to open more data centers, and as the prices for necessary components like memory chips jump because of the demand. In April, Microsoft said soaring component prices would add $25 billion to its tab this year. Despite all the building and spending, the tech giants say they still do not have enough computing power to meet demand. In effect, they say, they have been leaving money on the table. "More capacity = more sales," a Bank of America analyst, Justin Post, wrote last week in a research note after Alphabet, Google's parent company, increased its spending forecast for this year by $15 billion to as much as $205 billion. The pent-up demand has contributed to a backlog in signed contracts for Amazon, Google and Microsoft. Much of the growing backlog comes from partnerships with OpenAI and Anthropic, the leading A.I. start-ups. That means the fate of the giants rests in large part on the start-ups' needing all the computing power they have requested, and their ability to pay for it. That poses a concentration risk, creating "a more circular system that could mask true demand," according to Moody's Ratings. (The New York Times has sued OpenAI and Microsoft, claiming copyright infringement of news content related to A.I. systems. The companies have denied the claims.) The tech companies have borrowed more than ever to fund the A.I. building boom. Yet they are also able to rely on their lucrative established businesses, like digital advertising, which rain down cash. "This party could go on for a while," Ms. Otto said. Amazon said on Thursday that it had $200.6 billion in sales in the second quarter, up 20 percent from a year earlier. Profit more than tripled to $62.6 billion, in large part because of the company's investment in Anthropic. Amazon's core retail business in North America grew 16 percent, and its cloud computing business grew 37 percent to $42.2 billion in sales. The amount of cash from operating its business over the past year was $161.4 billion, up 33 percent. But after investments in data centers and other facilities, Amazon's free cash flow plunged to negative $7.6 billion. Investors pummeled Meta on Thursday after the company forecast disappointing sales a day earlier, while it raised the lower end of its capital expenditure forecast for the year to $130 billion, from the $125 billion it projected in April. "I mean, look, the high-level observation is that there's just nowhere near enough compute for all the demand," Mark Zuckerberg, Meta's chief executive, told investors as he made a case for why the investments will pan out. Susan Li, Meta's finance chief, said the company was focused on securing as much capacity as possible for 2026 and 2027, but keeping flexibility in mind for 2028 and beyond. That means locking up land and power for data centers now, even if the company has not figured out precisely how it will use the computing down the line. Microsoft's share price, which has been down this year, got some reprieve on Thursday as the company's financial results a day earlier surpassed Wall Street expectations and it did not increase how much it planned to spend this year. Sales of Azure, the cloud computing platform at the heart of Microsoft's A.I. services, exceeded $100 billion for the first time for the fiscal year that ended in June, and quarterly sales grew at the fastest pace since 2022, when Azure was a much smaller business. Microsoft expects to spend more than $50 billion in the current quarter. Satya Nadella, Microsoft's chief executive, said the company had opened 31 data centers across five continents last quarter. The company, he said, is "on track to roughly double our overall capacity in just two years."

Three things we learned about AI from Big Tech earnings

The world's biggest technology companies - including Microsoft, Meta, Google, Apple and Amazon - updated Wall Street this week on their finances. One common thread emerged: they are all planning to continue spending massive amounts of money on artificial intelligence (AI). The reaction from investors was that they need to see more tangible results to show for the $1tn (£743bn) and growing investment in things like computer chips, data centres, and even technical staff. It sent some tech stocks tumbling around the globe. While each company operates in different sectors, their AI spending and plans showed they have a few other things in common as well. OpenAI's release of ChatGPT in late 2022 kicked off the ongoing AI investment race, and every major tech company has since launched a consumer-facing AI chatbot of their own. Meta has Meta AI, Google has Gemini. Amazon has Rufus. Apple even relaunched Siri. Yet, none of the chatbots or the related tools in and of themselves clearly provide a meaningful amount of revenue for the companies, despite being costly to create. Instead, this batch of earnings results made clear that companies like Google, which is owned by Alphabet, and Meta are currently spending much more money related to AI tools than they bring in. Both companies reported some of their lowest ever amounts of free cash flow, a measure of how much money a business has left over after paying for operations and investments. Google spent so much money on AI that Alphabet's free cash flow was negative on revenue of $118bn, meaning it spent more than it brought in for the first time in the company's history as a public company. Meta's free cash was just $784m on $61bn of revenue, meaning it spent almost as much money as it made during the quarter. Meta's Reality Labs, which is responsible for its AI work, lost nearly $9bn in the first half of this year. Look no further than Wall Street's reaction to Meta's quarterly results to see that investors are no longer placated with executive's claims that AI investment will turn out to be worth it at some unknown point in the future. Shares of the social media giant plunged to its second lowest level in a year after chief executive Mark Zuckerberg said Meta was working on its own AI agent, or an AI chatbot that can operate somewhat autonomously. And that it was planning to develop an operation to sell an an AI tool directly to other firms. Neither the operation or the AI tool currently exist in a way that could make Meta money, and Zuckerberg gave no timeline for when they would materialise. Still, Meta increased the low end of its planned spending on AI - it is likely to pour more than $140bn into AI this year alone. Meanwhile, shares in Microsoft soared to a six-month high. Despite the company's plans to effectively match this financial year the $190bn it spent on AI over the last 12 months, it showed strong revenue growth and more adoption of its core AI tool. Tracy Woo, an analyst with Forrester, said Microsoft was a tech company showing that its massive AI investments were "beginning to deliver returns." The market reaction to Amazon was almost identical. Despite negative cash flow, and plans to spend $220bn on AI this year, the success of its other businesses drove its stock to its highest price in two months. AI tools may have not yet proven to be a consumer tech revolution on the scale of the internet or even electricity, as many tech executives have promised for years. But there is still huge demand from people for new technology. Google said last week that 950 million people are using its Gemini chatbot at least once a month, three times the users it had a year ago. Apple on Thursday said that new versions of its core products, the Mac computer, iPhone and iPad, have been selling better this year than the company planned for or expected. So much so that it warned investors that sales of such products would slow down, because Apple is unable to get enough of the microchips that would be required to meet buyer demand. The company is, however, anticipating a lot of excitement from Apple users for its impending update of Siri, its AI voice assistant within its products that is getting an overhaul with the help of Google's Gemini chatbot. Outgoing chief executive Tim Cook said Apple already has plans to charge users who wish to make heavier use of the new Siri, given feedback received from user testing so far. "We're off-the-charts excited about Siri AI", Cook said. "We do believe there will be people who want to use it - a lot."

Big Tech holds nearly $2.4 trillion in spending commitments for AI

Alphabet, Amazon, Meta, and Microsoft hold roughly $2.4tn in AI spending commitments, and two are already cash-flow negative The four largest US technology companies have locked in nearly two and a half trillion dollars in purchase commitments, contractual obligations, and leases tied to artificial intelligence, Bloomberg reported on Thursday. Alphabet leads the group with about $900 billion in total commitments, a figure roughly nine times higher than a year earlier. Meta follows with about $700 billion in future spending, Amazon has budgeted $220 billion in capital expenditure for this year alone, and Microsoft's own obligations round out the group. The numbers capture more than annual capex. They include long-term purchase orders for chips, power contracts, and data centre leases that stretch decades into the future, commitments that will eventually land on balance sheets but for now sit in financial footnotes. About half of Meta's total is tied to data centre leases running as long as 30 years, roughly eight times what the company carried a year ago. Alphabet's commitments have grown at a similar pace, much of it structured through off-balance-sheet vehicles that keep the headline debt figures looking tidy. Two of the four are already feeling the strain. Alphabet reported negative free cash flow of nearly six billion dollars in the second quarter, its first quarterly outflow in close to two decades. Amazon's free cash flow swung to negative territory on a trailing-twelve-month basis earlier this year, and its second-quarter results showed the cash position remains under pressure even as AWS revenue grew 37 percent. Meta is expected to follow. The company narrowed its 2026 capex forecast to between $130 billion and $145 billion by raising the low end, and its free cash flow fell 91 percent year on year in the second quarter. The pattern across all four companies is the same: revenue is growing, but capital spending is growing faster, and the gap shows up first in cash flow. Amazon CEO Andy Jassy compared the current moment to the first AWS build-out, when the company spent years investing before demand caught up. The analogy is meant to reassure investors that the spending will eventually pay for itself, much as AWS grew from a side project into a business generating more than $40 billion a quarter. The difference is scale: the original AWS build-out cost a fraction of what the industry is now committing in a single year. The question hanging over earnings season is whether demand is keeping pace. AWS answered in the affirmative this week with its fastest growth in four years, and Alphabet's cloud unit grew 82 percent in the second quarter. But combined capex across the largest cloud operators is on track to overtake the cash their core businesses generate, a threshold the industry has never crossed before. For now, all four companies remain profitable, because capital spending is depreciated over years rather than booked as an immediate expense. The accounting smooths the cost, but it does not eliminate it. The $2.4 trillion in commitments is real money that will come due whether AI revenue materialises at the scale these companies are betting on or not.

Meta Struggles With Limited Returns on Its AI Spending, Social Media Legal Woes

Meta's financial metrics have taken a notable punch due to its AI spending. In the company's earnings report on Wednesday, Meta executives shared that free cash flow for the past quarter was down to only $784 million, a major drop compared to the $8.55 billion number for the same time period last year. Revenue for the entire fiscal year is also looking likely to come below market expectations. Meta is the second AI hyperscaler in a week to receive investor wrath for struggling free cash flow. Last week, Google reported negative free cash flow due to the money it was pouring into AI, a first in company history. The tech giants claim the combined trillions of dollars they are pouring into AI is warranted to address a surge in demand. But experts have been growing weary of these promises, fearing that the investment is potentially overestimating how fast that demand will materialize, a scenario that, if true, could point to a potential AI bubble. Analysts had been expecting bad news on the free cash flow front for some time now, considering the eye-watering financial commitments the AI hyperscalers have been announcing in the past two rounds of big tech earnings. Google validated some of those fears last week, and Meta made matters worse on Wednesday. "I get that this is sort of a big bet across the industry," CEO Mark Zuckerberg said of AI investment in the company's earnings call. "My personal bet is that the people who invest in this are going to be rewarded and feel very good over time." Meanwhile, Zuckerberg's last big bet, the company's Reality Labs unit, lost $4.62 billion in the last quarter. The unit, which started as the driving force of Zuckerberg's shift to the Metaverse, has generated more than $80 billion in total operating losses in roughly 6 years. Zuckerberg thinks that the AI investment is already "paying off." For example, Meta said that it is now using LLM technology to improve its ad rankings and algorithms in the company's social media platforms. "Earlier this year, we reached a milestone of every public Reels and Feed post on Instagram being automatically processed through an LLM and analyzed across dimensions from topic to tone," Meta CFO Susan Li said in the earnings call. Company executives also spent the call promising a strong AI product pipeline soon, from Meta glasses to "agents that can work 24/7 on your behalf." Zuckerberg thinks that the popularity of AI agents can move beyond the coding world into everyday consumer use. "The first domain that agents have really taken off in is coding, but engineers are more technical and willing to spend time making those agents work," Zuckerberg said. "So, to build great personal agents, this needs to be a great consumer product that just works out of the box and is easy enough for billions of people to adopt and use. I'm very excited about this, and we're going to have more to share soon." But even if Meta's AI concerns resolve in Zuckerberg's favor, Meta is also bracing for trouble on the legal side. The company said that it spent $2.4 billion "in charges related to legal proceedings" in the past quarter. The company is fighting a barrage of lawsuits, with accusations that include allegedly using discriminatory AI to decide who would be laid off in a brutal restructuring earlier this year. But the bulk of those lawsuits have to do with the impact Meta's social media platforms have on kids and teens. Most of those lawsuits have to do with addictive design features that plaintiffs say were knowingly put in place to get children addicted to social media from a young age, leading to worse mental health outcomes down the line. One of those social media addiction lawsuits is being brought against Meta by four states, California, New Jersey, Colorado and Kentucky. Earlier this month, Meta unveiled in a court filing that the states' claims could cost the tech giant $1.4 trillion in damages. As of Wednesday night, the company's market valuation was a little less than $1.5 trillion.

Meta's AI splurge lays bare its compute conundrum

July 30 (Reuters) - Meta (META.O), opens new tab can simultaneously fuel its own AI ambitions and rent out its scarce computing capacity to bolster returns, CEO Mark Zuckerberg signaled on Wednesday. The problem is: investors aren't buying it. The Instagram owner is splurging billions to build compute - chips, servers, energy and data centers that power AI - leaving it with free cash flow of just $784 million in the second quarter to run and grow its business. That collapse, of 91% from a year ago, drove its stock down 9% premarket on Thursday. Pressed by analysts for details on Meta's plans, Zuckerberg framed compute as a scarce strategic asset that the company should keep and build around, rather than simply sell for short-term profit. But he acknowledged that the company had received a number of offers for its computing capacity from businesses that wanted to deploy their own AI plans "at a meaningful premium" over what it invested to build that capacity. That tension sits at the heart of Meta's challenge in diversifying its revenue stream. Renting out compute could ease Meta's cash-flow squeeze, but would also divert scarce resources from its own push ⁠to build AI models and services. Having built its fortune selling ads on Facebook and Instagram, the company is now trying to take on larger rivals including Microsoft (MSFT.O), opens new tab, Alphabet (GOOGL.O), opens new tab and Amazon (AMZN.O), opens new tab that have deep ties to enterprises, an early and lucrative market for AI. Microsoft on Wednesday showed how its AI bets were paying off even as its free cash flow fell 23%. The Windows maker breezed past expectations for growth in its Azure cloud unit and Copilot assistant thanks to a huge base of corporate customers and its early AI build-out, sending its stock up 8%. SPENDING LIKE A CLOUD GIANT "We believe that there will continue to be a significantly higher margin on selling intelligence rather than selling compute directly, but we think that there's a big opportunity obviously to sell compute as well," he said, as he painted a picture of what Meta hopes to build with its AI spending spree. Zuckerberg argued that AI-powered personal assistants could become a mass-market product used by billions of consumers, while business agents could eventually help companies handle customer service, sales and marketing. But beyond broad references to subscriptions and enterprise services, he offered few specifics on how those businesses would justify Meta's massive AI spending. Responding to a question from J.P.Morgan analyst Doug Anmuth, who noted that Meta was also purchasing ⁠capacity from third parties while selling compute, Zuckerberg said Meta was intentionally investing ahead of demand. "There is a lead time where we're investing in building out these data centers now. They come online at some point in the future. You obviously are not getting value out of them until they're online," he said. "Meta is spending like a hyperscaler without a hyperscaler's business model," said Josh Gilbert, online investing platform eToro's lead APAC analyst, referring to large cloud companies. "Microsoft, Alphabet and Amazon can point their data centre dollars at cloud businesses that sell compute straight back out the door, but Meta doesn't have the same outlet, so every dollar of build-out leans on the ads business." METAVERSE SCARE Meta's massive ⁠AI spending push has unnerved some investors, who are drawing parallels to the company's costly pivot to the metaverse - a bet that racked up tens of billions of dollars in losses without becoming a large revenue generator. Its free cash flow slump in the April-June quarter was the steepest since late 2022, when the metaverse bet attracted similar investor scrutiny. Still, Meta raised the low end of its capital spending forecast by $5 billion, lifting the range to between $130 billion and $145 ⁠billion. That echoes Alphabet, which raised its own forecast by $15 billion last week, reported its first cash burn on record and was punished with a 7% share drop. Meta CFO Susan Li said on a post-earnings call that the spending was justified because the industry had "underbuilt historically" for AI demand, making existing capacity "extremely valuable." She said capacity would remain tight "for the foreseeable future," creating opportunities for Meta to generate returns through products, enterprise services ⁠and compute sales. But responding to a question from Wells Fargo analyst Ken Gawrelski on whether Meta planned to internally use all its compute capacity through 2027, Li ended the call much as Zuckerberg had started it: arguing Meta could find profitable uses for additional compute both inside and outside the company, without indicating where those returns would ultimately be the greatest. "The earnings call felt a lot like a good old-fashioned brainstorming session," said Bernstein analyst Mark Shmulik. Reporting by Aditya Soni, Deborah Sophia and Jaspreet Singh in Bengaluru and Sayantani Ghosh in San Francisco; Editing by Saumyadeb Chakrabarty Our Standards: The Thomson Reuters Trust Principles., opens new tab

Zuckerberg lays out Meta's AI capacity dilemma: What to sell vs. what to keep

"A common trade-off that we need to make is around how much do you monetize something today versus develop future assets," Zuckerberg said on the call. As Meta gobbles up land to construct massive AI data centers, CEO Mark Zuckerberg says there's a balancing act when it comes to deciding whether to sell excess capacity or to preserve it. Among the four major U.S. hyperscalers, Meta is the only one that doesn't have a business selling cloud infrastructure and services even though its capital expenditures rival that of its peers. But in recent months, Zuckerberg has been floating the possibility of launching a cloud business as a way to take advantage of its capacity stockpile in a resource-constrained market. As CNBC reported earlier this month, Anthropic is in preliminary talks to lease computing power from Meta. "We're getting a lot of offers for compute at a significant premium over what we paid for it," Zuckerberg said on the company's second-quarter earnings call after the bell on Wednesday. "And we have more coding and productivity tools on our roadmap as well." Zuckerberg's comments came after Meta issued a weaker-than-expected revenue forecast for the third quarter and said free cash flow dwindled by 90% from a year earlier due to soaring capex. The stock sank more than 7% in after-hours trading, extending a slump that's pushed it down 11% for the year as of Wednesday's close. In the report, Meta bumped up the low end of its 2026 capital expenditure guidance by $5 billion, bringing the range to between $130 billion and $145 billion. Last week, Alphabet hiked the top end of its guidance to $205 billion and turned cash flow negative for the first time. And Microsoft said in its earnings report on Wednesday that capex for the year will be roughly $175 billion. Amazon reports results on Thursday. Investors have been seeking details on Zuckerberg's AI strategy, which has been scattershot and left Meta behind OpenAI, Anthropic and Google in the market for top models and services. "I think everyone wants clarity into what he wants to do in the compute business," Brent Thill, an analyst at Jefferies, told CNBC's "Closing Bell Overtime." Zuckerberg offered little by way of specifics on his plans, but he spelled out some of the various considerations at play. "In terms of running the business, obviously, a common trade-off that we need to make is around how much do you monetize something today versus develop future assets," Zuckerberg said. "I think that it's always a portfolio." He said that in looking at a potential enterprise business, it's not just about selling capacity. The company also has API and productivity services it can offer as well as AI agents that it's building, Zuckerberg said. "And I think that there's just a very, very large opportunity there," he said. However, Meta needs ample compute capacity to satisfy its own AI ambitions, especially as the company begins aggressively rolling out new models under the leadership of AI chief Alexandr Wang. Earlier this month, Meta debuted the Muse Spark 1.1 model, which Wang said represents the "strongest model for agentic and coding work yet" and at a cheaper price than offerings from OpenAI and Anthropic. "It would be foolish to basically just sell all of the compute and take a short-term profit," Zuckerberg said. Zuckerberg acknowledged that jumping into the enterprise, where Meta has historically struggled, will require some hard work, and that the company has to learn how to do it. While he didn't reference hiring a sales force, it will be an essential move if Meta is serious about selling to businesses big and small. "That's going to be somewhat a new muscle that we build as a company," Zuckerberg said. "But I think it's a very important one that we build." Dave Brown, a former longtime senior executive at Amazon Web Services, is set to join the company, CNBC recently confirmed. A big challenge for Zuckerberg as he tries to sell Wall Street on his vision is his spotty track record. Zuckerberg's most notable whiff was the metaverse, and his effort starting in 2021 to reshape the company around a futuristic digital world. That project is still costing Meta billions of dollars a quarter. Meta's Reality Labs, which develops virtual reality devices and wearables, lost $4.62 billion in the latest period on just $431 million of revenue. Still, Meta is desperate to diversify its business beyond digital ads, which still account for 98% of the company's revenue, and to show that it can be an influential player in AI. Zuckerberg is all-in. "I get that this is sort of a big bet across the industry," Zuckerberg said. "My personal bet is that the people who invest in this are going to be rewarded and feel very good over time." Choose CNBC as your preferred source on Google and never miss a moment from the most trusted name in business news.

Meta's Profit Falls 14 Percent as A.I. Spending Continues

The Silicon Valley company's costs rose more steeply than revenue growth, as it continues to invest heavily in artificial intelligence. Meta has bet big on artificial intelligence. On Wednesday, it said that bet would not let up. The Silicon Valley company, which owns Facebook, Instagram and WhatsApp, increased the lower end of its capital expenditure forecast for the year to $130 billion, up from its $125 billion projection in April. Much of that investment will go to building data centers, the computing facilities that power A.I. Meta also said its costs and expenses rose faster than its revenue growth for the second quarter. Revenue was $60.8 billion, up 28 percent from a year earlier, while costs jumped 55 percent to $42 billion. Profit was $18.3 billion, down 14 percent from a year earlier. Mark Zuckerberg, Meta's chief executive, focused on how A.I. was aiding his company's businesses, including its digital advertising. "We are now at a point where our investments in A.I. are accelerating every major part of our core business," he said. He added that "potentially selling compute directly," which refers to computing power, could be a new business opportunity. But investors appeared to be spooked by Meta's rising expenses. The company's stock fell more than 9 percent in after-hours trading. Meta's continued spending follows Google's announcement last week that it would raise its capital expenditures. Big tech companies are expected to pay $1.5 trillion on building data centers this year and next year. The enormous sums have raised questions about whether such spending is justified, with the stock market gyrating over concerns about the outlays in recent weeks. Mr. Zuckerberg previously said Meta was considering selling computing power from its data centers to other companies. In June, Anthropic offered to buy computing power from Meta in a deal that could be worth up to $10 billion; the talks are ongoing. Unlike Google, Amazon and Microsoft, which are also spending on A.I. data centers, Meta is without a business that lets companies rent computing power and A.I. tools. People think A.I. spending "is supposed to slow down, but who's going to be the first company to blink?" said David Wagner, the head of equity at Aptus Capital Advisors. Meta's shift from a social media company to an A.I. firm has not been smooth. This month, it removed a feature that let people make A.I. images of one another on Instagram just days after its release because of a backlash over privacy concerns, among other snafus. But the company has made progress developing its own A.I. models. This month, Meta released the latest version of Muse Spark, its most advanced A.I. model developed under Alexandr Wang, the company's chief A.I. officer. It also introduced an A.I. image generator, Muse Image, and plans to release a video generator in the coming months. Muse Spark still trails other A.I. models in benchmarks that measure coding, reasoning and writing. Meta plans to release a more powerful model, code-named Watermelon, this fall. In recent days, Mr. Zuckerberg has also gone on the attack against companies like Anthropic and OpenAI in defense of open-source A.I. models, which are freely available for others to build upon. In an interview with The New York Times on Tuesday, he said tightly controlling A.I. development would be "abandoning our values" and would stifle innovation. Meta also faces ongoing litigation over claims that its social media products are addictive and said it spent $2.4 billion on legal fees in the second quarter. It lost the first of nine bellwether addiction trials in March but gained a reprieve this month after one plaintiff, a 15-year-old from Florida, dropped his suit. Meta's A.I. smart glasses continue to be a bright spot. Its Reality Labs division, which develops those glasses, generated $431 million in revenue in the quarter, up 16 percent from a year earlier. The division lost $4.6 billion, about the same as a year earlier. Meta's family of apps grew to 3.6 billion users, up 3 percent from a year earlier.

Meta shares fall as frustration grows over AI spending plans

Meta shares plunged on Wednesday as investors balked at its promise to keep spending on artificial intelligence (AI) projects while profits dwindle. Shares in the firm behind Instagram and Facebook fell 11% after its quarter results showed revenue between April and June grew 28% from a year ago, while profits fell 14%. Meta said it would spend $130bn (£973m) to $145bn this year, mostly on AI projects, up from the $125bn it said it planned to spend just three months ago. Chief executive Mark Zuckerberg said the company's AI spending was "accelerating every part of our core business" and that it planned to start selling the technology to other businesses. He said on the call that Meta's AI abilities and models were driving engagement on Instagram and Facebook and boosting the ability of smaller businesses to create advertising. Zuckerberg added that the company was developing AI agents, or AI chatbots that act somewhat autonomously. Such agents "will be the next wave of our product line in the months and years to come," Zuckerberg said. "Soon, we'll have agents that can work 24/7 on your behalf", Zuckerberg added during the call. "Great personal agents need to just work out of the box. I'm very excited about this and we will have more to share soon." As for Meta's plans to sell AI models and computer tools to other firms for the first time, Zuckerberg said the first step is to make its Muse Spark AI model "easier for companies to integrate". "We expect to build a large business for large businesses," Zuckerberg said. "We have more coding and product tools on our roadmap." Although Zuckerberg said the move would flex "a different muscle than we've historically had", he said the financial opportunity was too big to ignore. "It's not just about selling compute; it's the API services and the productivity services and I think there is a very, very large opportunity there and we're quite focused on that."

Meta lifts the floor on its AI spending as revenue jumps but cash flow collapses

Second-quarter sales rose 28%, yet free cash flow fell 91% as capital spending on AI heads toward $145bn. Meta narrowed its forecast by raising the low end. Meta told investors it will spend even more on artificial intelligence this year, narrowing its capital-expenditure forecast for 2026 by lifting the floor rather than the ceiling. The company now expects to spend between $130 billion and $145 billion, up from a prior range that started at $125 billion, roughly double what it laid out a year earlier. The spending is landing on a fast-growing business. Meta reported second-quarter revenue of $60.8 billion, up 28% from a year earlier, its quickest growth since late 2021, as advertising held up and AI-tuned recommendations kept users scrolling. The advertising engine did the heavy lifting. Better AI recommendations lifted engagement across Instagram and Facebook, and a stronger ad market let Meta turn that extra attention into its fastest revenue growth in years. What the growth is not doing is reaching the bottom of the cash statement. Free cash flow fell to $784 million, down 91% from $8.55 billion a year earlier, a collapse that shows how completely the AI build-out is swallowing the money the ads business throws off. Profit came in soft as well. Earnings of $6.18 a share missed analysts' expectations of $7.22, dragged down in part by legal costs, even as the top line beat forecasts. Those legal costs are not incidental. Meta booked a $2.4 billion charge in the quarter, and a group of US states is seeking as much as $1.4 trillion in penalties over claims that its products are designed to addict young users, litigation that shadows every quarter. The user base, at least, is still expanding. Meta counted 3.6 billion daily active people across its apps, up 3% year on year, a reassuring figure after an earlier quarter in which daily users had dipped. Zuckerberg used the call to explain where the money goes. A large share of compute, he said, will train Meta's models, feed the core advertising business, and power the "personal agents" he expects to become a major consumer product. He also sketched a second act. Meta plans to "grow a large business serving large customers," he said, a reference to renting out AI compute, a cloud-style line that would turn its vast infrastructure into a revenue stream rather than only a cost. That framing is meant to answer the obvious worry. With capex doubling and cash flow evaporating, investors want to know when the spending becomes earning, and Zuckerberg's reply is that the same data centres will eventually pay their own way. The narrowing of the forecast is itself a signal. By raising the low end of the range rather than the high, Meta is effectively promising that spending will not come in light, a commitment to the build-out even as the returns remain a matter of faith. The pattern is not Meta's alone. Across Big Tech, the second-quarter numbers have told a similar story of surging AI investment outrunning the cash it generates, a bet the whole industry has made at once. Meta's version is distinctive in one respect. It is spending like a cloud provider without being one yet, funding a superintelligence ambition out of an advertising engine, and asking shareholders to trust that the two halves eventually meet. For now, the market gets what it has grown used to. Strong revenue, thinning profit, ballooning capex, and a chief executive insisting the outlay is not a risk but a moat, quarter after quarter. Wall Street has learned to live with the trade-off, at least for now. Meta's shares have largely held up through the spending spree, on the bet that a company growing revenue at 28% can afford to invest heavily, provided the growth does not stall. The reckoning, if it comes, will be about timing. Meta can afford this build-out today; the question its collapsing free cash flow raises is how many more quarters it can spend at this pace before the payoff has to arrive.

Meta misses earnings forecasts after Zuckerberg media push to promote AI

Stock tumbles nearly 8% after weaker-than-expected results, despite CEO's blitz to tout positive effects of AI Meta chief executive Mark Zuckerberg's media spree touting the positive impacts of artificial intelligence did little to cushion the blow of its second-quarter earnings, which sent its stock tumbling on Wednesday. In a Wall Street Journal op-ed published on Tuesday, Zuckerberg expressed his optimism for a world where everyone has access to a super-intelligent machine. "As a thought experiment, imagine only one person had a super-intelligent lawyer," Zuckerberg wrote. "He would have an unfair advantage in court. That would lead to a worse society. But now imagine everyone has a super-intelligent lawyer. Justice would be carried out much more fairly and efficiently than it is today." But Zuckerberg's message of AI optimism wasn't enough to alleviate Wall Street's initial reaction to Meta's second-quarter earnings. The company's stock slid nearly 8% after reporting weaker-than-expected results. Meta posted $6.18 in earnings per share, missing Wall Street expectations of $7.14 in earnings per share, according to Bloomberg consensus estimates. Revenue was $60.8bn, beating analyst predictions of $60.23bn. The company also raised the lower end of its expected expenses and spending for the year. Meta chief financial officer Susan Li said the company had $2.4bn in "charges related to legal proceedings" in the second quarter, raising total expenses to the range of $165 to $169bn, up from $162 to $169bn. And it expects 2026 capital expenditures to range from $130 to $145bn, up from $125 to $145bn. Meta has previously said a big portion of its capex is earmarked for its AI investments. Zuckerberg's PR blitz came as investors and analysts look for the company's justification of its massive spending on AI infrastructure, a concern that has contributed to the 10% drop in the company's share price year over year. Big tech companies such as Meta, which have increasingly burned through free cash flow, need to sell consumers and Wall Street on the promise of AI to defend their spending. The stock market's response to Zuckerberg's remarks on the company's earnings call, scheduled for later this evening, could reveal whether his messaging is enough to ease investor concerns. Meta has struggled to make an AI model to rival OpenAI or Anthropic, but it plans to start a cloud business to sell AI compute, monetizing some of its immense AI investments, Bloomberg reported this month. The report was one of the few things to boost investor confidence this year, spurring a spike in the stock's long decline. The day before earnings, Zuckerberg echoed his belief in decentralizing AI and creating an era of "personalized super-intelligence" where everyone has an AI assistant tailored to their needs and beliefs, in interviews with the New York Times and the Financial Times. Though he did not specify how Meta plans to approach this, based on the company's history, personalization would likely require consumers to hand over even more of their data. Still, Zuckerberg said it was better than his competitors' centralized models. "I think it is literally impossible to have a single benevolent super-intelligence that is simultaneously aligned with everyone at once," Zuckerberg told the New York Times. Meta may be "trying to do too much at once", Mike Proulx, the vice-president research director at advisory firm Forrester Research, said. "Every one of Meta's major growth lanes now carries a trust toll," Proulx said in a statement before listing Meta's new projects. "AI-generated advertising raises new brand-control concerns, smart glasses create new privacy questions, youth safety remains under intense scrutiny, and employee tracking initiatives spark data-collection backlash." Zuckerberg's narrative speaks to Meta's need to set itself apart from competitors - many of whom he said are sending messages filled with "doom" about the future of AI. "I don't understand why anyone who believes that AI will eliminate most jobs and much of humanity's relevance would rush to build that future," Zuckerberg wrote in the WSJ. Still, Meta's attempt to create a positive message around its AI systems may fall flat, said eMarketer senior analyst Minda Smiley. "It's not surprising that Zuckerberg wants to come out with a more cohesive message around the company's AI ambitions, especially as Meta tries to carve out its own lane," Smiley said in a statement. "But the optimistic, positive tone he's striking stands in stark contrast to the negative sentiment that's building toward social media companies over claims that they've harmed and addicted kids. This juxtaposition could make it more difficult for Meta to build credibility in an area where it's already a laggard." While Zuckerberg makes an argument for Meta's open-source approach to AI development, the company is being forced to answer for its previous practices developing its products and the impacts they have had on users. Meta is facing about 3,000 lawsuits alleging that it deliberately creates addictive products leading to the harm of children. The suits have been brought by families, school districts and states' attorneys general. Forty-two states have sued Meta in state courts, with Tennessee's case currently at trial. And a separate federal lawsuit brought by 29 attorneys general goes to trial in California next month. "The shifting regulatory environment is also a major Meta risk," said Proulx. "Policymakers are more focused on youth wellbeing, addiction, and platform safety ... Youth restrictions will affect who Meta can reach. That's a big problem for a company that depends on ad revenue." The lawsuits not only call Meta's corporate practices into question, they also come at a financial cost. The company has already suffered damaging losses, with two separate juries finding Meta liable for harming children and awarding plaintiffs millions in damages. Lawyers for the families, schools and lawmakers say they will not stop seeking high-cost damages until Meta changes the design of its products. Dara Kerr and Nick Robins-Early contributed reporting

Meta narrows annual capex forecast as AI buildout grows

July 29 (Reuters) - Meta Platforms (META.O), opens new tab narrowed the range of its forecast for annual capital expenditure on Wednesday, as the social media giant doubles down on building a fleet of data centers to expand its AI computing power Shares of the company fell about 5% in extended trading. The Facebook parent now expects 2026 capital expenditure to be between $130 billion and $145 billion, compared with its prior forecast of $125 billion to $145 billion. The company also raised the lower-end of its expense outlook to incorporate the $2.4 billion charges related to legal proceedings recognized in the second quarter. Meta said it now expects full-year 2026 total expenses to be in the range of $165 billion to $169 billion, compared with its prior forecast of $162 billion to $169 billion. At the heart of Meta is its advertising business, with Reels battling TikTok and YouTube Shorts for dominance in ⁠the short-video market and Threads taking on Elon Musk's X, while AI powers more precise ad targeting and recommendation systems to boost user engagement. Trend advisory firm Madison and Wall said in June it expects ad revenue to rise by 8.3% to $1.42 trillion in 2026, benefiting from several cyclical sports events, including the Winter Olympics and the FIFA World Cup. Social media advertising is expected to rise 14% to $421 billion during the year. Ad sales are also powering CEO Mark Zuckerberg's pursuit of superintelligence -- a hypothetical concept where AI surpasses human intelligence in every possible way -- and the development of its Meta AI assistant and AI smart glasses. Meta results come days after Alphabet's first cash burn on record in the second quarter jolted investors, as soaring AI spending strains one of the world's most profitable companies. The feverish spending by Big ⁠Tech is expected to reach well above $700 billion this year, primarily on AI, while Morgan Stanley has pegged the estimated spend at more than $1 trillion for the next year. Meta is building several gigawatt-scale data centers across the U.S., including one in rural Louisiana, a project it expects to expand to 5 GW of compute capacity, with investment increasing to more than $50 billion. Media reports, including by Reuters, said earlier this month that Meta was in talks ⁠to lease computing power to Anthropic in a potential deal worth up to $10 billion over two years. Meta on Tuesday formed a venture for its El Paso, Texas, data center, which is 80% owned by BlackRock and 20% by Meta, and nearly resembles its arrangement with Blue Owl Capital for the Louisiana project, as ⁠the company looks to keep debt off its balance sheet. While investors are scrutinizing Meta's AI spending, it faces privacy-related risks tied to its smart glasses. The company said in a court filing this month that four states were seeking $1.4 trillion in penalties over accusations it designed ⁠its Facebook and Instagram platforms to addict young users and misled the public about their safety. Meta had warned in April that legal and regulatory blowback in the European Union and the U.S. over youth social media issues "could significantly impact" its business and financial results. Reporting by Katie Paul in New York and Jaspreet Singh in Bengaluru; Editing by Shilpi Majumdar and Nia Williams Our Standards: The Thomson Reuters Trust Principles., opens new tab

Meta stock drops 10% as free cash flow gets crushed -- and Zuckerberg hints at cloud business | Fortune

The AI trade is coming to a realization: America's best businesses are turning into utilities. Such is the fate that befalls Meta, whose shares fell as much as 10% in after-hours trading Wednesday after the company missed earnings due to costs ballooning 55% (Meta's stock later recovered some ground and was down 7%). Its operating income fell 8%, net income dropped 14%, and it barely eked out just $784 million of free cash flow -- just narrowly missing falling into negative territory and well below the roughly $12 billion in free cash flow the company has averaged over the previous eight quarters. Meta's revenue in Q2 was up 28% from a year earlier, beating expectations, but operating income at Family of Apps, the segment containing Facebook, Instagram, WhatsApp and Messenger, fell to $23.4 billion from $25.0 billion. So, its core business grew revenue, but made less money doing it. And the money that the company is earning is immediately being used -- and most of it is not going to investors. The reason why is the term investors have come to love-to-hate: Capex. Capital expenditure now is up to $31.1 billion in the quarter, nearly double the amount spent the year earlier. Operating cash flow came to $31.9 billion; in other words, the company spent almost every dollar of cash its businesses could generate on AI infrastructure: servers, data centers, network infrastructure and chips. Meta has always had to invest in the data centers that serve its popular social networking services to people all over the world. But the massive amount of computing power necessary to train and run AI models has supercharged the level of investment, upending the financial model in which Meta's lucrative advertising business allowed it to stockpile cash. This new Meta, like its hyperscaler peers, must build multi-billion-dollar data centers at a non-stop pace, acquiring land, securing power, purchasing chips, running cooling systems and replacing machines that become obsolete within years (Depreciation and amortization in the second quarter rose 46% year over year to $6.4 billion in the quarter). Its other rivals, Microsoft, Amazon and Google, have created an escape hatch for themselves, renting that infrastructure to outside customers through enormous cloud businesses. That allows them to generate immediate revenue from their cloud investments. Indeed, Microsoft was enjoying its stock rising almost 2% from that cloud growth after Wednesday's close of market as Meta CEO Mark Zuckerberg fielded questions from analysts wondering why his company wouldn't do the same. Zuckerberg acknowledged the potential to generate additional revenue by renting its computing infrastructure to other companies, and confirmed that Meta has plans to get into the cloud business, promising an update soon. "We're getting a lot of offers for compute at a significant premium for what we paid for it," Zuckerberg said. But he framed the opportunity as more of a side quest than a core business, and said that he believed the real value is in offering its own AI services on top of its infrastructure. "It would be foolish to basically just sell all of the compute and take a short-term profit," Zuckerberg said. He added the company expects "a significantly higher margin on selling intelligence rather than selling compute directly." The intelligence Zuckerberg meant was a full-stack of businesses Meta hopes to build: an ad system that AI has made 15.7% better at converting, agents that could answer customer messages for a million businesses, an API selling access to Meta's models, and, most mysteriously, a personal assistant working 24/7 to build a profile of a user's health, finances, and relationships, which does not exist yet. "There's only so much that I can say on an earnings call about this," Zuckerberg said. In the meantime, the company has transitioned its financing. Meta issued $24.9 billion of long-term debt during the quarter and bought back no stock, after repurchasing more than $10 billion a year earlier. CFO Susan Li said Meta had been deliberately moving toward "a greater mix of debt" to fund infrastructure projects with long lives and expected passive income. Meta now expects full-year capital expenditures of $130 to $145 billion, having raised the floor. It spent $50.9 billion in the first half. That leaves $39 billion to $47 billion a quarter for the rest of the year, against operating cash flow of roughly $32 billion. So, it follows that this quarter was the last positive cash-flow quarter this year. But asked what 2027 would cost, Lee declined to say, offering instead that Meta expects to remain demand-constrained; that it has more profitable uses for computing power than computing power to use. Zuckerberg, not one to balk to investors, did not choose to hedge this time either. "My personal bet is that the people who invest in this are going to be rewarded and feel very good over time," he said.

Meta misses profit expectations, sticks to massive AI spending

San Francisco (United States) (AFP) - Facebook-parent Meta reported profits on Wednesday that fell short of Wall Street expectations, as the cost of staying in the race to deploy artificial intelligence -- along with hefty legal and severance charges -- hurt its bottom line. The social media giant said net income dropped 14 percent from a year earlier to $15.8 billion. Revenue, however, climbed 28 percent to $60.8 billion, beating estimates and underscoring the continued strength of its advertising business. Shares in Meta were down as much as 12 percent in after-hours trading, a sign of analyst skepticism over the scale of the company's AI spending. Its results contrasted with those of Microsoft, another tech giant that has faced investor doubts but beat analyst expectations on Wednesday, driven by its cloud and artificial intelligence businesses. At Meta, the profit decline was driven largely by one-time items, including $2.4 billion in charges tied to legal proceedings and $1.2 billion in severance from a round of layoffs in May. Meta has been fighting court and regulatory battles around the world, including one in which a California jury in March ordered Meta and Google to pay $6 million to a 20-year-old woman who said the platforms had addicted her as a child. The decision was a first-of-its-kind verdict that could be echoed in thousands of similar cases against Meta still pending. Meta reaffirmed that it would keep spending heavily on the data centers and chips underpinning its AI effort, telling investors it now expects capital expenditures of $130 billion to $145 billion this year -- nearly double what it spent in 2025 and slightly higher than its last forecast. "AI is accelerating our core business today, powering our next generation of products, and opening the door to entirely new enterprise opportunities," chief executive Mark Zuckerberg said in a statement. 'Meaningful premium' The new opportunities referred to Meta's plan to launch a cloud computing business that would rent out its vast computing power to outside customers. "We have quite a number of offers at a meaningful premium over what we paid for the (computing power)," Zuckerberg said on a call to analysts after the earnings report. This would offer a new revenue stream, echoing a strategy Elon Musk's SpaceX has used to help finance its own AI infrastructure. Unlike rivals Amazon, Microsoft and Google, Meta has never sold cloud services externally. Zuckerberg's "optimistic, positive tone" on AI's business possibilities "stands in stark contrast to the negative sentiment that's building toward social media companies over claims that they've harmed and addicted kids," said Emarketer senior analyst Minda Smiley. "This juxtaposition could make it more difficult for Meta to build credibility in an area where it's already a laggard," Smiley added. Meta's virtual reality division, Reality Labs, remained deep in the red, posting an operating loss of $4.6 billion in the quarter. The unit has bled tens of billions of dollars, and Meta has increasingly shifted its hardware focus toward AI-powered smart glasses, a promising consumer release outside social media. Unusually for a big tech company, Meta's AI spending spree has seen its cash pile wind down, with free cash flow falling to $784 million from $8.5 billion a year earlier. A similar AI-related cash burn spooked Wall Street last week when Google reported its latest earnings. Microsoft on Wednesday reported $90 billion in revenue and $35.8 billion in net income for its most recently completed quarter, potentially alleviating investor concerns about whether its investments in AI are paying off. Amazon, a major AI investor, and Apple, which has largely stayed out of the AI investment frenzy, both report on Thursday.

Meta continues to insist AI spend is totally justified, potentially blowing over $8 billion on data centers

Just because Meta keeps saying AI is paying off doesn't necessarily make it true. Meta has just reported a second quarter revenue of $60.80 billion. Though this figure represents another record-breaking year-on-year increase of about 28%, shares are reportedly down by 10%. Seems like the AI money pits may be shifting beneath Meta's feet. The company reported it had $784 million in free cash flow by the end of Q2 2026, but that represents a 91% year-on-year decrease compared to the $8.55 billion it had to throw around last year. Where did all that money go? Questionable spending on the company's VR and AR division, Reality Labs, is only part of the story. The rest can be attributed to Meta's AI infrastructure buildout. Both Meta CEO Mark Zuckerberg and CFO Susan Li projected optimism to investors during the latest earnings call. Zuckerberg told investors, "Our investments in AI are accelerating every major part of our core business." Zuckerberg offers the example of advertising, explaining, "We are using LLMs to improve how our systems predict and rank the ads that we show. We've expanded the context that we can take into account around a person's organic and ads activity to determine an ad's relevance, driving significant increases in relevance and conversions on both Facebook and Instagram." The company was somewhat buoyed this past quarter by making $59 billion in revenue from advertising. Zuckerberg went on to say, "On a dollar basis, our ads business is reporting faster year-over-year revenue growth than any other company's reported ad business -- so these AI investments are paying off." Zuckerberg then said, "We see a large enterprise opportunity to sell to businesses, including APIs, business agents, potentially selling compute directly, and other services that we're building for large customers." 'Selling compute' would be one way to potentially see a return on outsized AI investment. Li elaborates, "The industry has under-built historically for the wave of AI adoption, making existing capacity, including our own, extremely valuable." As such, Meta may not be slowing down on its AI infrastructure build-out. The company predicts it will spend somewhere between an eye-watering$130 billion and a face-melting $145 billion this year alone. Zuckerberg told investors, "As AI usage in our products and businesses continues to ramp, we continue to invest aggressively in infrastructure to meet the demand." With Meta seemingly content to spend, spend, spend, will investors stay the course? Or will Meta's various money pits finally give way beneath it? Time will tell.

Meta incurs Wall Street's short termist wrath as CapEx soars and cash flow crashes 91% to fund AI expansion, but Zuckerberg holds the line

Wall Street had been bracing itself for more defiance from Meta CEO Mark Zuckerberg over his continued determination to invest heavily in AI infrastructure, but few could have imagined that what they would be presented with was a 91% drop in cash flow to fund this spending. In Q2, the firm reported free cash flow of $784 million, down from $8.55 billion a year ago as CapEx soared to $31.08 billion, with more to come - the company now expects total 2026 spend to be as high as $169 billion, up from a range of $115 billion to $135 billion set out at the start of the year. Zuckerberg remained defiant about the need for such levels of spending: In terms of the different opportunities and how we think about the compute, overall, a substantial amount of the compute goes towards training models to be a leading lab. And I think that that's an important investment. But then the rest of it goes towards a set of different products and revenue opportunities, which spans from optimizing and improving our core business to building new consumer products that we're releasing soon to the API, to the business agents work, to the developer tools work on the road map that I alluded to and then also the opportunity to sell compute directly where we have quite a number of offers at a meaningful premium over what we paid for the compute. That last remark appears to refer to the news that Meta is set to rent AI computing power to rival Anthropic in a $10 billion deal. It's relatively small amount, but from a 'political' perspective, it would generate fresh revenue for Meta and - perhaps! - calm nerves from investors around the firm's ongoing aggressive infrastructure spend. Vision According to CFO Susan Li: Our AI investments are going to play a significant role in delivering on this vision, including the expansion of LLM-based content understanding to develop a deeper understanding of posts and creators that people value to capture user interest more precisely and respond more quickly to what they care about in the moment and using AI to surface high-quality, fresh and trending content and reduce the share of low-quality content. Second, we're continuing to improve our data infrastructure to allow our models to train on more data and leverage that data more effectively. We're adding more detail to how we describe content that users have engaged with in the past and enriching past user interaction sequences with more granular content. That allows our models to more precisely learn which engagements are more or less valuable to users. We're continuing to scale up both the length of user interaction sequences we use during training as well as the complexity of our model architectures across Facebook and Instagram to take advantage of the larger data sets. And then we've already made significant strides leveraging LLMs for content understanding. She added: Our longer-term capacity strategy aims to give us the flexibility to continue growing compute in 2028 and beyond by laying down data center and network foundations to accommodate future server decisions. The long-lived nature of these assets inherently provides the flexibility that will make it possible to adjust our investment to the pace of AI adoption. In addition, we have been making strategic investments in areas like our internal custom silicon effort, which will provide long-term strategic flexibility and supply chain leverage. This will be helpful in driving better returns on those long-term investments. Finally, we believe that overall industry capacity is going to remain tight for the foreseeable future. As we've said earlier, we strongly believe that the models, consumer experiences and enterprise offerings that we are building will be the best and highest ROI use of our infrastructure. She added: We expect that remaining nimble about these opportunities will help us fund our build-out more efficiently while preserving our strategic flexibility to have the compute when we need it and provide us multiple pathways to generate returns on expected on invested capital. In funding these infrastructure investments, the strength of our balance sheet gives us the ability to attract capital from a wide range of markets to supplement the cash flow generated by our business. Data centers Meta currently has 32 data centers around the world in operation or under construction, 28 of them in the US, but this is not enough to keep up with demand. In a recent development, the firm announced a joint venture with Blackrock, the world's largest investment firm, to develop and own a $14 billion data-center campus in El Paso, Texas. Meta last year unveiled plans to invest $1.5 billion to build the El Paso data center and boosted its spending commitment to $10 billion in March. BlackRock will own 80% of the venture, while Meta will own the remaining 20% and lease the entire campus, which will have 1 gigawatt of compute capacity. The companies expect to begin bringing the compute capacity online in 2028. Zuckerberg said of the deal: Building the infrastructure for superintelligence is key to making sure the benefits of this technology are distributed to everyone. Elsewhere Meta earlier thsi month scaled up the size and scope of a Lousiana data center project to deliver five gigawatts of compute capacity, bumping up the cost from the original estimate of $27 billion to more than $50 billion. My take We are really a full-stack technology company. We built our own data centers, our own infrastructure, our own chips, our own low-level software. I've said before that one thing that Zuckerberg does need to be given credit for is his defiance of Wall Street short-termists screeching to be shown the money from AI, not told about the amount that needs to go into investing in the tech's essential foundations. So far, he's holding the line.

AI revenues are growing fast, but not fast enough

The returns on trillions of dollars of spending are deeply uncertain. The numbers just don't add up. You ain't seen nothing yet. Last year America's biggest technology companies, including Amazon, Google and Microsoft, spent $US450 billion ($640 billion) on infrastructure, much of it to power artificial intelligence. This was just an amuse-bouche. For the main course, they will spend $US900 billion on chips, data centres, power and so forth this year, with a $US1.4 trillion pudding to follow in 2027. To fund this feast, they have borrowed more than $US400 billion this year. The AI capex boom is fast becoming the largest investment surge in history. If superintelligence is in reach, building football fields' worth of compute could also be history's most valuable capital-allocation exercise. And yet capital spending can still generate disappointing returns for investors. Since peaking in June, the share prices of the biggest AI firms have fallen by 20 per cent, as worries have mounted that flows of capital from one tech firm to another, rather than genuine demand from end-users, have been propping up the industry, while South Korea's benchmark index, dominated by Samsung Electronics and SK Hynix, two big chipmakers, has dropped by almost 40 per cent. After Meta reported second-quarter earnings on July 29, its shares shed more than 7 per cent, even as Mark Zuckerberg, its boss, defended its spending on AI, which has eaten deeply into free cashflow.

Google, Amazon, Microsoft and Meta have reportedly spent over $1 trillion on AI

It's that time of year when companies are posting quarterly and annual financial results, and with all of that fresh data, the Financial Times has posted a quick little AI investment update for the world's biggest hyperscalers: Google, Amazon, Microsoft, and Meta. And yes, per the headline, over the last three years of the current AI boom, these companies have spent $1.1 trillion on AI. And the AI spending is showing no signs of slowing down, as these four companies are expected to spend the majority of their $745 billion in capex on data centers, new chips, and power this year. It's so much money that the Financial Times says that America's big tech giants are betting their future on AI technology. The report then goes on to say that "success" depends on the ability of companies like OpenAI and Anthropic to keep raising funds to meet their growing commitments, while also noting the effect this expansion and spending is having on supply chains and the consumer technology markets. Namely, the effect it's starting to have on Apple, one of the big tech giants that has effectively sat out the AI race. With rising component costs and memory supply being an ongoing issue, the immediate future looks like lower sales and smaller margins, and Apple's stock price fell 6.3% last week. And for those wondering if all of this investment has led to any sort of profit, companies like Google, Amazon, and Microsoft are now reporting strong growth in cloud computing as AI begins to seep its way into all corners of the tech and business world. Meta, which doesn't have its own cloud business, notes that AI is helping it increase its advertising revenue, which was up by almost 30% in the company's latest quarterly report. "There is basically no end in sight for the growth in capex," RBC Capital analyst Rishi Jaluria adds. "Investors need these companies to toe the tight line between investing in AI and not compromising the things that have made them successful."

Meta reports $279 billion in future data center leases for AI

Meta Platforms Inc. said it has $279 billion in future lease agreements mostly related to artificial intelligence data centers that are not yet reflected on its balance sheet. Total commitments for leases that have not yet commenced were $279 billion as of the quarter ended June 30, Meta said Thursday in a regulatory filing. That's up 53% from $183 billion in the prior period as the pace of investment accelerates. The future costs come on top of active leases and are a mix of short- and long-term commitments. The company said they consist of data centers, colocations and "certain network infrastructure." Meta added $68 billion in commitments in July alone, expected to start in 2027 and 2028. The owner of Facebook and Instagram on Wednesday gave a disappointing quarterly revenue forecast, stepping up pressure on Chief Executive Officer Mark Zuckerberg to prove that the company will benefit enough from its massive investment in the AI race. Unlike rivals Microsoft Corp., Alphabet Inc. and Amazon.com Inc., Meta doesn't typically sell its computing power to customers, so over-investment in data centers could be riskier. Investors on Wednesday's call repeatedly pressed Zuckerberg to give detail on any potential for a cloud business, but he didn't share solid plans. More stories like this are available on bloomberg.com

Tech companies rack up debt, risks to fund AI ambitions

Major technology companies are taking on massive amounts of debt to fund their lofty AI ambitions, casting a shadow over investors' once endless well of enthusiasm for AI-related stocks and sending jitters through the market. Tech firms like Google, Meta, Microsoft and Amazon have committed hundreds of billions of dollars toward building infrastructure to power AI development in recent years, with investors largely rewarding the hefty spending. But as these companies increasingly rely on debt to finance this expensive endeavor, the market is starting to look at some of the biggest AI plays with a wary eye. The companies leading the data center buildout -- Amazon, CoreWeave, Google, Meta, Microsoft and Oracle -- are expected to spend $785 billion this year on infrastructure, according to a recent report from Moody's Ratings. This sum is projected to grow further in 2027, nearing $1 trillion. Despite being "among the most cash-rich companies in history," these firms have taken on about $460 billion in debt to support their AI spending in a move that Moody's warned could "threaten credit quality." "Credit metrics are still very strong for most of these companies, but a material shift in the structure of their balance sheets is becoming evident," it added. There has been a massive increase in bonds issued by these hyperscalers, surging from just $16.7 billion in 2024 to $193 billion so far in 2026, according to data from LSEG. This included the same companies as above, minus CoreWeave. "I'm not shocked that Big Tech companies are coming out and tapping equity and debt markets," Callie Cox, chief market strategist at Ritholtz Wealth Management, told The Hill. "It was assumed as much when they started ramping their spending up and started talking about these audacious AI strategies." "I think what is surprising is the magnitude of the spending and the amount of fundraising that these companies have leaned on the stock and debt markets for," she added. The markets are "showing some signs of fatigue" over the influx of debt, S&P Global analysts wrote in a report last week. Bond spreads have been increasing for these companies, in a sign that investors are seeking higher yields. "Hyperscaler spreads have been widening quickly with each new debt infusion since last fall -- even Microsoft is seeing wider spreads over this period despite not issuing new debt," they wrote. "Market participants are growing leery of quickly rising leverage from issuers previously characterized by strong and reliable cash flow." The cost of insuring debt from the major hyperscalers has also jumped in recent weeks. Oracle, which has long faced questions about its growing debt load, saw its five-year credit default swaps jump to 218 basis points last Wednesday, according to data from S&P Global. Credit default swaps allow a buyer to protect against the risk that a borrower defaults on their debt for a premium. When this price rises, it typically reflects a higher risk of default. Swaps on Amazon, Microsoft, Alphabet, Meta, Nvidia CoreWeave and SpaceX similarly ticked up at the end of last month. SpaceX, which acquired xAI earlier this year, is increasingly positioning itself as a hyperscaler, striking multibillion-dollar deals with AI labs to provide computing power. "We're seeing the rates of CDS spike for the Big Tech companies, especially for the ones that are running a little low on free cash flow, mainly because it's prudent from a risk management perspective to think about if something could fail in the future," Cox said. "It's not necessarily a bet that something will fail," she continued. "But it's definitely raising eyebrows on Wall Street." While the market has long favored the AI industry's ever-growing infrastructure commitments, this enthusiasm is beginning to waver as investors question whether the technology will provide the expected return on investment. Google's stock took a hit last month after reporting second-quarter earnings. While the search giant upped its spending forecast for the year by $15 billion, the company revealed its free cash flow had turned negative for the first time since going public. Meta's shares also dipped on quarterly earnings last week, as the Facebook parent raised the lower end of its 2026 spending forecast by $5 billion and revealed that its free cash flow fell to about $780 million. Meanwhile, Microsoft added almost $450 billion in value the day after reporting. The company said it would hold spending steady this year and indicated that free cash flow would remain positive throughout fiscal year 2027. Amazon seemingly bucked this trend. The e-commerce giant announced another $20 billion in capital expenditures and negative cash flow, but saw its stock pop on higher-than-expected revenue. Apple, which has largely stayed out of the AI spending boom, has sat apart from its peers in a relatively unique position. "Apple has almost been contra trade versus the hyperscalers as of late," Cox said. "If Apple's doing well, the hyperscalers are not doing well, and vice versa." "I really think there's this push and pull between financial quality and nimbleness around AI," she added. "And depending on the day, depending on the event, depending on the mood, investors may like either side of that equation." Despite a tech sell-off last week driven by AI spending concerns and fears about competition from China, the markets surged back Tuesday, with both the S&P 500 and Dow Jones Industrial Average closing at new highs.

Zuckerberg defends Meta's AI bets as forecasts disappoint

San Francisco | Meta Platforms has given a disappointing quarterly revenue forecast, stepping up pressure on chief executive Mark Zuckerberg to allay investor concerns that the company isn't swiftly benefiting from its massive outlay on artificial intelligence. The social media giant on Wednesday (Thursday AEST) also reported the lowest free cash flow in years, a sign of ballooning expenses for AI bets, including data centres and smart glasses, which could amount to $US145 billion ($208.5 billion) this year.

AI isn't a catch-all trade for stocks in this earnings season

Investors are becoming more selective about AI-linked stocks, rewarding companies such as Microsoft and Amazon for showing clear returns from their investments while penalising Meta and Alphabet for rising spending and weaker cash flows. Despite strong earnings growth across the US and Europe, European equities have outperformed as gains broaden beyond technology into financials, energy and healthcare. Equity investors are learning a harsh lesson this corporate earnings season: Not all artificial intelligence trades are created equal. While profits at S&P 500 and Stoxx Europe 600 constituents as a whole are tracking one of the best quarterly increases in years, traders have been much more discerning about how much cash is being spent on developing generative AI. US MarketsPowered By As on 01 Aug 2026, 01:30 AM IST S&P 500 Top Gainers Amazon.com271.58(15.32%) DexCom83.45(11.95%) Monolithic Power Systems1,426(8.35%) Eaton Corp415.20(7.32%) Gainers" S&P 500 Top Losers GoDaddy82.74(-16.70%) Corteva78.71(-11.90%) Coinbase Global146.26(-10.59%) Coterra Energy32.56(-8.62%) Losers" Shares of tech heavy-hitters such as Meta Platforms Inc. and Alphabet Inc. have been penalized after the companies signaled even more capital expenditure, while the likes of Microsoft Corp. have been rewarded for preserving their cash reserves. The semiconductor supply chain has also felt the ripple effects, with Lam Research Corp., Schneider Electric SE and Prysmian SpA among the outperformers on robust demand for their technology that enables AI. "Earnings have remained resilient, but investors have become much more disciplined about paying ever higher valuations for large-cap technology," said Violeta Todorova, senior research analyst at Leverage Shares. "On the other hand, Europe has quietly delivered improving profit expectations across a broader range of sectors." S&P 500 firms are on track to post a 29% surge in second-quarter earnings per share, among the highest on record outside of post-crises recovery years, according to data compiled by Bloomberg Intelligence. And yet, the S&P 500 has gone nowhere since the season began in mid-July, weighed down by the largely underwhelming response to big tech. On the other hand, European stocks are seeing the boost from strong results as they have a lower concentration of tech heavyweights. The Stoxx 600 has advanced 1.3%, and briefly hit a record, as its members posted a 19% surge in profits, according to Barclays Plc data, after earnings barely rose in the past two years. "We had reduced our exposure to the US and rotated partially to Europe prior to the earnings season," said Amelie Derambure, a senior multi-asset portfolio manager at Amundi SA. "We weren't comfortable with the weight and concentration on the broad AI theme, but we were expecting Europe to deliver on demanding expectations in terms of earnings -- and it did." Tech Divergence That skepticism about AI has shown up in the reaction to Big Tech results this season. Shares of Facebook owner Meta sank 8% after it gave a disappointing quarterly revenue forecast and reported the lowest free cash flow in years, a sign of ballooning expenses for AI bets. On the other hand, Microsoft soared 16% to add nearly half a trillion dollars in market value, the most by any stock in a single day. The catalyst: The fastest cloud growth in four years and indications that the company would hold the line on new capital spending this year. Amazon.com Inc. shares jumped 15% after the company reported upbeat cloud-computing revenue, easing concerns about the payoff from huge expenditure on AI. "At some point, investors are going to get weary of all the spending by the hyperscalers," said Bob Lang, founder and chief options analyst at Explosive Options. "It should come as no surprise to see a firm rewarded for backing away." A UBS Group AG basket of so called AI winners rallied 11% in the past two sessions after a slate of reassuring earnings reports. The gauge, which includes the likes of Sandisk Corp., ASML Holding NV and Taiwan Semiconductor Manufacturing Co., had sold off in July on worries about ballooning valuations. Earnings Optimism One bright spot is a strong showing from sectors beyond technology. Financial, energy and healthcare are among the standouts in both the US and Europe in terms of the number of companies beating analyst estimates for the second quarter, data compiled by BI show. Profit expectations are still rising, both in the US and Europe, underscoring optimism around economic growth and easing inflation despite lingering concerns around geopolitics. Companies on both sides of the Atlantic have boosted guidance at one of the strongest rates in recent years, Barclays strategists said. US earnings revisions -- the number of analysts raising their estimates minus those cutting them -- have also seen net upgrades for 15 weeks in a row, the longest streak since 2022, according to a Citigroup Inc. index. In Europe too, the highest number of analysts have boosted expectations since 2021. For some investors, that resilience is providing hope that the worst reaction to earnings may be over. "Good earnings were not good enough initially for many," said Ken Mahoney, chief executive officer of Mahoney Asset Management. "Now that we have gotten past a lot of these earnings and seen some pretty significant corrections in individual names, we are watching to see if they can stabilize and find some higher lows."

Meta's profits, shares fall after AI spend increase

Shares fell by around 11%, even though revenue grew in the company's latest quarter. Meta, the company that owns Facebook, Instagram, and is looking to be one of the key forces behind an AI-driven future, has seen its share price plummet by up to 11% following its most recent quarterly financial results. Revenue for the company was up by 28% year-over-year, but when it comes to profit, it's a different story, as they are down 14%. The social media giant is looking to spend anywhere between $130bn to $145 billion this year, mostly on AI infrastructure. This is up from the $125 billion it said it was going to spend at the end of the last quarter. Mark Zuckerberg, Meta's chief executive, said that AI will be "accelerating every part of our core business." Soon, he thinks Meta will be able to sell its AI to other companies for profit. Chief financial officer Susan Li believes that by 2028, the profits from AI will help drive returns. Mike Proulx, an analyst at Forrester, believes that Meta may be repeating past mistakes with its AI spending. As per BBC News, he said: "There's a bit of similarity to Meta's metaverse missteps in that Meta is once again spending ahead of proven product demand." Zuckerberg is convinced the gamble will pay off. "I get that this is a big bet across the industry. My personal bet is that the people who invest in this will feel very good and be rewarded over time." It's clear not every investor agrees, but big tech is still betting heavily on AI being our future in almost every industry.

META Drops 9% as Free Cash Flow Collapses 91%, AI Agent Pitch Falls Flat - Meta Platforms (NASDAQ:META)

Mark Zuckerberg spent Wednesday's earnings call describing AI agents that would handle users' health, finances and careers, alongside coding and customer service agents he wants to sell to businesses. Investors spent Thursday selling. Meta Platforms Inc. (NASDAQ:META) fell about 9% as the market worked through a quarter in which the company's cash generation almost entirely disappeared. Meta produced $31.86 billion in operating cash flow over the three months, then spent $31.08 billion of it on capital expenditure, leaving free cash flow of $784 million. That is down 91% from a year earlier. Guidance did not help. Meta pointed third-quarter revenue to between $61 billion and $64 billion, and the $62.5 billion midpoint landed below Wall Street's roughly $63.1 billion expectation. Nobody Can Find The AI Revenue The advertising machine underneath all of this still works, with revenue of $60.8 billion beating estimates and ad demand holding firm. What Meta has not disclosed is how much incremental revenue its newer generative-AI products produce, or what return they earn on the infrastructure built to support them. Ed Zitron, noted AI skeptic, made that case on CNBC hours before the results landed. Meta "will not disclose its AI revenues," he said, arguing the superintelligence framing exists to keep the question off the table. Zitron said Meta had spent roughly $180 billion in capital expenditure before the latest quarter. Meta does not break out how much of that total went to AI. JPMorgan's Doug Anmuth said much the same after the call. Meta "did not come away learning much incremental" on the developer API, consumer and business agents, or plans to monetize compute directly, he wrote while cutting his target to $640 from $725. Traders Will Not Price Meta At The Frontier Polymarket traders give Meta a 2% chance of having the best AI model at the end of the year. Anthropic sits at 70%, Google at 11% and OpenAI at 9%. That holds even after Bank of America's Justin Post said Meta's next model, code-named Watermelon, "has achieved frontier-level performance on internal benchmarks." Nobody Gets To Vote Zuckerberg controls Meta's voting shares, leaving outside shareholders with little formal power to force a change. Analysts expect the spending to keep growing, with Anmuth projecting 2027 capital expenditure of $243 billion, up 70% year over year. Zitron made the same point less politely on CNBC. Zuckerberg "can do whatever he wants," he said. "He's a mad king. And so he'll spend money in whatever way he wants." Image: Shutterstock Market News and Data brought to you by Benzinga APIs To add Benzinga News as your preferred source on Google, click here.

Meta's AI splurge lays bare its compute conundrum

The Instagram owner is splurging billions to build compute - chips, servers, energy and data centers that power AI - leaving it with free cash flow of just $784 million in the second quarter to run and grow its business. That collapse, of 91% from a year ago, drove its stock down 9% premarket on Thursday. Meta can simultaneously fuel its own AI ambitions and rent out its scarce computing capacity to bolster returns, CEO Mark Zuckerberg signaled on Wednesday. The problem is: investors aren't buying it. The Instagram owner is splurging billions to build compute - chips, servers, energy and data centers that power AI - leaving it with free cash flow of just $784 million in the second quarter to run and grow its business. That collapse, of 91% from a year ago, drove its stock down 9% premarket on Thursday. Pressed by analysts for details on Meta's plans, Zuckerberg framed compute as a scarce strategic asset that the company should keep and build around, rather than simply sell for short-term profit. But he acknowledged that the company had received a number of offers for its computing capacity from businesses that wanted ⁠to deploy ⁠their own AI plans "at a meaningful premium" over what it invested to build that capacity. That tension sits at the heart of Meta's challenge in diversifying its revenue stream. Renting out compute could ease Meta's cash-flow squeeze, but would also divert scarce resources from its own push to build AI models and services. Having built its fortune selling ads on Facebook and Instagram, the company is now trying to take on larger rivals including Microsoft, Alphabet and Amazon that have deep ties to enterprises, an early and lucrative market for AI. Microsoft on Wednesday showed how its AI bets were paying off even as its free cash flow fell 23%. The Windows maker breezed past expectations for growth in its Azure cloud unit and Copilot assistant thanks to a huge base of corporate customers and its early AI build-out, sending its stock up 8%. Spending like a cloud giant "We believe that there will continue ⁠to be a significantly higher margin on selling intelligence rather than selling compute directly, but we think that there's a big opportunity obviously to sell compute as well," he said, as he painted a picture of what Meta hopes to build with its AI spending spree. Zuckerberg argued that AI-powered personal assistants could become a ⁠mass-market product used by billions of consumers, while business agents could eventually help companies handle customer service, sales and marketing. But beyond broad references to subscriptions and enterprise services, he offered few specifics on how those businesses would justify Meta's massive AI spending. Responding to a question from J.P.Morgan analyst Doug Anmuth, who noted that Meta was also purchasing capacity from third parties while selling compute, Zuckerberg said Meta was intentionally investing ahead of demand. "There is a lead time where we're investing in building out these data centers now. They come online at some point in the future. You obviously are not getting value out of them until they're online," he said. "Meta is spending like a hyperscaler without a hyperscaler's business model," said Josh Gilbert, online investing platform eToro's lead APAC analyst, referring to large cloud companies. "Microsoft, Alphabet and Amazon can point their data centre dollars at cloud businesses that sell compute straight back out the door, but Meta doesn't have the same outlet, so every dollar of build-out leans on the ads business." Metaverse scare Meta's massive AI spending push has unnerved some investors, who are drawing parallels to the company's costly pivot to the metaverse - a bet that racked up tens of billions of dollars in losses without becoming a large revenue generator. Its free cash flow slump in the April-June quarter was the ⁠steepest since late 2022, when the metaverse bet attracted similar investor scrutiny. Still, Meta raised the low end of its capital spending forecast by $5 billion, lifting the range to between $130 billion and $145 billion. That echoes Alphabet, which raised its own forecast by $15 billion last week, reported its first cash burn on record and was punished with a 7% share drop. Meta CFO Susan Li said on a post-earnings call that the spending was justified because the industry had "underbuilt historically" for AI demand, making existing capacity "extremely valuable." She said capacity would remain tight "for the foreseeable future," creating opportunities for Meta to generate returns through products, enterprise services and compute sales. But responding to a question from Wells Fargo analyst Ken Gawrelski on whether Meta planned to internally use all its compute capacity through 2027, Li ended the call much as Zuckerberg had started it: arguing Meta could find profitable uses for additional compute both inside and outside the company, without indicating where those returns would ultimately be the greatest. "The earnings call felt a lot like a good old-fashioned brainstorming session," said Bernstein analyst Mark Shmulik.

Big Tech's $2 trillion AI shakeout just changed everything

Wall Street just drove a harsh line through the artificial intelligence trade. Amazon (AMZN), Microsoft (MSFT) and Alphabet (GOOGL)added nearly $1.5 trillion in combined market value during earnings week, according to CNBC. Microsoft gained more than $600 billion, while Amazon and Alphabet each added more than $400 billion. Other tech giants took a hit. Apple (AAPL) shed more than $350 billion in market cap as supply problems dimmed its outlook. Meta Platforms (META) erased over $85 billion in market value as investors questioned the return on its heavy investment in AI technology. Tesla (TSLA) dropped over $7 billion after posting negative free cash flow and forecasting heavier spending. The six firms saw over $2 trillion come in or go out. The companies were not afraid to spend money. Jefferies estimates Big Tech's AI spend is on track to reach about $800 billion in the next 12 months. Amazon increased its 2026 capital-expenditure forecast to $220 billion and still soared. The difference was obvious. Amazon, Microsoft and Alphabet revealed that people are already paying to use the infrastructure they are developing. There was no mistaking Wall Street's message. AI ambition alone won't be enough. Investors want to see the bill and proof that someone is paying it. "It's whether in the long term demand is going to be sufficiently profitable to warrant all of this investment," Jefferies investment banker Jason Greenberg told CNBC. Amazon, Microsoft and Alphabet passed the AI payback test Amazon's results provide the strongest evidence that big spending can still lure investors. Amazon Web Services revenue rose 37% from a year earlier, the best gain since 2021. Most of Amazon's AI-related business is booked in its cloud segment, so that acceleration is a direct hint customers are buying more computer power. Amazon stock rose more than 15%, even as management boosted projected capital investment for 2026 from $200 billion to $220 billion. Microsoft, too, returned a similar result. Shares rose almost 15% after investors applauded the robust growth in Azure and Microsoft's overall cloud operation. Microsoft may install pricey processors in its data centers and sell access to them via cloud subscriptions, enterprise applications, and AI services. Alphabet's fast-growing Google Cloud rounded out the victorious trifecta. All three have something Meta, Apple, and Tesla don't have at the same scale: established cloud platforms that can leverage processors, power, and data center capacity into recurring revenue. That makes cloud growth Wall Street's favorite AI scoreboard. If infrastructure demand is accelerating, investors may be fine with declining free cash flow. They are much less patient if management promises a payoff way down the road without saying who will ultimately pay the bill. Meta failed the AI test, while Apple faced another crisis Meta was the biggest loser under the new rule Wall Street adopted. The company raised the bottom of its capital-spending outlook, but CEO Mark Zuckerberg provided few details about external demand for Meta's infrastructure. Its AI systems are helping to improve advertising and engagement, but investors still don't have a clean revenue line showing the return on those massive investments. Chesnot / Getty Images Wall Street has rewritten the rules for AI stocks Apple and Tesla stock fell for various reasons. Apple's earnings and iPhone sales topped estimates, but the firm expected current-quarter revenue growth of 9% to 11%,, below Wall Street's 12% projection. Apple is having trouble shipping devices because of memory shortages and restricted capacity at chip factories. So Apple didn't fail because it spent too much on AI, but it still faced challenges in meeting demand. Investors feared supply concerns would prevent it translating great demand into revenue, and it broke apart. Another risk was represented in the fall of Tesla. The company posted negative free cash flow and continued to spend on autonomous driving, manufacturing, and AI infrastructure. Investors have to balance more spending with an unclear timeline for rewards. These firms do not have the same difficulty. Meta needs to prove that AI investments can generate new revenue. Apple needs to fix its supply problems. Tesla has to prove that pricey future technologies are capable of generating enough cash to warrant the sustained expenditure. What Big Tech investors should watch * Cloud growth: AWS, Azure and Google Cloud now provide the clearest AI demand signals. * Capital expenditures: Spending is rewarded only when revenue growth supports it. * Free cash flow: Investors may accept deterioration when customer demand is visible. * Direct monetization: Companies must explain who pays for their AI products. * Margins: Revenue eventually must outpace infrastructure, power and chip costs. * Guidance: Strong historical results will not protect a stock from a weak outlook. The market has not yet chosen the permanent winners of artificial intelligence. It has picked the companies that are providing the best available proof to investors today. Amazon, Microsoft, and Alphabet can construct AI infrastructure and charge users to utilize it right now. Meta, Apple, and Tesla all need to tie their spending, products, or technology promises to measurable financial returns in different ways. The biggest winners in AI may not have the best model. Maybe these are just the corporations who have figured out the fastest way to charge their clients. The Arena Media Brands, LLC THESTREET is a registered trademark of TheStreet, Inc. This story was originally published August 2, 2026 at 11:33 AM.

Market Focus: Meta's higher AI budget jolts shares, signals long-term push - ​Revenue Rises, Stock Slides

Market Focus: Meta's higher AI budget jolts shares, signals long-term push 1/5 Revenue Rises, Stock Slides Meta reported a strong second quarter, with revenue jumping 28% year-on-year to $60.8 billion, driven by robust digital advertising demand and AI-powered improvements to its ad platform. However, the results failed to impress investors as profits declined and spending on AI infrastructure continued to surge, sending the stock sharply lower in after-hours trading. (Sources: BBC News, CNBC) 2/5 AI Costs Bite Net income fell 14% from a year ago as Meta absorbed higher legal costs, severance expenses and massive investments in AI. The company also raised its 2026 capital expenditure outlook to $130-$145 billion, underscoring CEO Mark Zuckerberg's commitment to building AI infrastructure despite the near-term hit to earnings and cash flow. 3/5 Spending Squeezes Cash Heavy AI investments significantly reduced Meta's free cash flow, highlighting the growing cost of competing in the artificial intelligence race. While advertising remains the company's primary earnings engine, investors are increasingly focused on when AI investments will begin generating meaningful financial returns. 4/5 User growth remains a bright spot Meta's family of apps continued to attract more users, reaching around 3.6 billion daily active people. Instagram crossed 2 billion daily users, while Threads expanded to roughly 500 million monthly active users, providing the company with a larger audience to monetize through advertising and AI-powered services. 5/5 AI Payoff Awaited Although Meta's advertising business remains resilient, investors are demanding clearer evidence that its enormous AI investments will translate into sustainable earnings growth. With spending expected to remain elevated, future quarters are likely to be judged as much on AI monetization as on advertising performance.

Zuckerberg is betting big on a superintelligence future

Every big vision eventually shows up on a balance sheet. Investors have spent the past year listening to Mark Zuckerberg describe a future in which artificial intelligence (AI) becomes personal, universal, and roughly as ordinary as electricity. The pitch has been consistent. It has also been expensive. Meta Platforms (META) has poured money into data centers, chips, and researcher pay at a pace no consumer internet company has attempted. On Tuesday, July 28, Zuckerberg took that argument to a newspaper opinion page and made his fullest case yet for why superintelligence should belong to everyone. Roughly 24 hours later, his own company published the invoice. What Zuckerberg actually promised about superintelligence The essay, titled "The AI Future Is for Everyone," was published by The Wall Street Journal. Zuckerberg organized it around three claims. Individual empowerment drives prosperity, invention rather than automation is the point of superintelligence, and a balance of power is the foundation of safety. The question is not whether superintelligence will exist, but "who will have access to it," Zuckerberg wrote. That is the philosophy. Meta produced $31.86 billion in cash from operations during the second quarter and kept $784 million of it. Free cash flow fell 91% from $8.55 billion a year earlier, according to Meta. Tippapatt / Getty Images Meta's second quarter shows what superintelligence costs The top line was never the problem. Revenue rose 28% to $60.80 billion, ahead of the roughly $60.2 billion analysts had modeled, according to Meta. Everything underneath the top line was the problem. Diluted earnings per share (EPS) came in at $6.18 against consensus near $7.17, and operating margin fell to 31% from 43% a year earlier. Capital spending hit $31.08 billion for the quarter, including principal payments on finance leases. That is more than double the $17.01 billion Meta spent in the same quarter last year, most of it going toward the enormous data center buildout Zuckerberg has been assembling across the country, which TheStreet highlighted. When I ran the two quarters side by side, the arithmetic was blunt. Operating cash flow grew about 25% year over year while capital spending grew 83%. One of those lines cannot outrun the other for long. Here is what the quarter cost, based on numbers from Meta: * Capital expenditures, including finance lease payments, of $31.08 billion. * Free cash flow of $784 million, down from $8.55 billion a year earlier. * Total costs and expenses of $42.03 billion, up 55% year over year. * A Reality Labs operating loss of $4.62 billion on $431 million of revenue. * Long-term debt of $83.66 billion as of June 30, up from $58.74 billion at the end of 2025. * Full-year capital spending guidance of $130 billion to $145 billion, narrowed from $125 billion to $145 billion. Third-quarter revenue guidance of $61 billion to $64 billion put the midpoint below the roughly $63.1 billion analysts had expected, CNBC noted. Shares fell close to 10% in extended trading, according to Investing.com. Why free cash flow matters more than the earnings miss Most of the coverage will lead with the earnings miss. That's the least useful number in the release, however. Free cash flow is simply what a company keeps after paying to run the business and to build whatever it is building next. It funds dividends, buybacks, and acquisitions. At $784 million on $60.80 billion of revenue, Meta kept about 1.3 cents of every dollar it took in. For scale, that is roughly what a mid-sized regional bank clears in a quarter, produced by a company worth more than $1 trillion. More Artificial Intelligence: Meta is not alone in this. Alphabet reported its own cash-flow squeeze last week on the back of AI infrastructure spending, and the market punished the stock for it, according to Yahoo Finance. The pattern matters because it tells you this is a sector condition rather than a Meta stumble. Every hyperscaler is converting cash into concrete and silicon at the same moment. The company also bought back no stock at all in the first six months of this year, compared with $22.92 billion of repurchases in the same stretch of 2025, according to Meta. It raised $24.91 billion in long-term debt during the quarter instead. A company that earned $42.6 billion in net income over six months does not borrow at that scale unless the building program has outgrown what the business throws off. What struck me in my analysis of the segment tables was the split inside the company. Family of Apps, meaning Facebook, Instagram, WhatsApp, and Messenger, earned $23.39 billion in operating income. Reality Labs lost $4.62 billion. Advertising is paying for the future. Superintelligence is not yet paying for itself. That gap explains a decision earlier this year that looked strange at the time, when Meta cut roughly 8,000 jobs while posting record revenue. If you hold an S&P 500index fund, you own a slice of this. Meta ranks among the largest companies in that index, which means Zuckerberg's spending choices land inside retirement accounts that nobody deliberately pointed at AI infrastructure. What to watch as Meta funds the everyone future Zuckerberg is not hiding the strategy. He described AI as accelerating Meta's core business already, according to a company statement. The narrowed capital spending range is the detail worth tracking. Lifting the floor from $125 billion to $130 billion takes the low-spending scenario off the table for 2026, whatever happens to the stock. Watch three things over the next two quarters: whether ad pricing holds at double-digit growth, whether the enterprise and agent products Zuckerberg described start arriving as revenue rather than roadmap, and whether free cash flow recovers or settles near zero as the new normal. The op-ed predicted that widely distributed superintelligence would create more jobs rather than fewer. The quarter answered a narrower question: Who funds the vision while the returns remain theoretical? Right now the answer is advertisers, bondholders, and shareholders, roughly in that order. Zuckerberg has bought himself a few more quarters to change it. The Arena Media Brands, LLC THESTREET is a registered trademark of TheStreet, Inc. This story was originally published July 30, 2026 at 8:33 PM.

Big Tech's $1 Trillion AI Investment Raises Questions Over Future Growth

Cloud revenue offers one route to repayment. Amazon Web Services reported 37% revenue growth in the second quarter, easing concern over Amazon's $220 billion spending plan. Microsoft also points to demand for Azure and AI products. Alphabet has reported strong Google Cloud growth, while Meta mainly links AI spending to advertising tools and future services. The companies are also signing leases and purchase agreements that extend beyond current capital spending. Google, Meta and added nearly $900 billion in new AI-related commitments during one quarter. These obligations include data centre leases, cloud capacity contracts and energy deals. Investors track these commitments since many payments will occur after facilities enter service. The amounts may not appear as current balance-sheet debt, yet they can restrict future cash use. Rising hardware prices and shortages of memory chips can also increase project costs before the facilities start earning revenue. Market reactions now depend on evidence of direct returns. Amazon shares rose after strong AWS growth showed that customers were using its added capacity. Alphabet and Meta faced weaker reactions after higher spending forecasts and lower free cash flow. The divide shows investors are rewarding AI investment when revenue growth and cash generation move with it. That pattern shaped market reactions during the latest earnings season.

Meta shares tumble 10% as Mark Zuckerberg's AI spending spree stuns Wall Street

Meta Platforms reported a precipitous 91% drop in second-quarter free cash flow on Wednesday, underscoring the financial strain of the social media giant's costly AI buildout despite an uncertain payoff. The Facebook parent company reported free cash flow of $784 million in the second quarter ended June 30, down from $8.55 billion reported a year earlier, sending its shares down 10% in extended trading. Meta's cash flow wipeout echoed Alphabet's, which last week said it was cash flow negative for the first time ever as it spent $5.9 billion in the second quarter. The rate of spending stunned even the most bullish of Wall Street investors, driving Alphabet's stock down. Meta's revenue jumped 28% to $60.8 billion in the quarter, the quickest pace of growth since the fourth quarter of 2021, barring the first quarter of 2026. "We expect that a significant portion of our compute is going to go towards training our models, growing our core business and delivering personal agents and new products, but we also expect to grow a large business serving large customers as well," CEO Mark Zuckerberg said on an earnings call. Meta currently has 32 data centers across the globe in operation or under construction, with 28 of them in the US. The company also raised the lower end of its capital expenditure outlook. It now expects 2026 capital expenditure to be between $130 billion and $145 billion, compared with its prior forecast of $125 billion to $145 billion. At the beginning of the year it had forecast capex between $115 billion and $135 billion. The feverish spending by Big Tech is expected to reach well above $700 billion this year, primarily on AI, while Morgan Stanley has pegged the estimated spend at more than $1 trillion for the next year. "Meta's report echoes what we saw from Alphabet and Tesla last week: strong revenue growth, but even faster growth in spending. The market is repricing a deteriorating free cash flow outlook, and in an environment of higher capital costs, that does not sit well," said Thomas Monteiro, senior analyst at Investing.com. Luke Stillman, a managing director at research firm Madison and Wall, said: "Meta's underlying ad business that's financing everything though is still performing well and is our main focus." Meta's legal troubles While investors are scrutinizing Meta's AI spending, it faces legal risks related to its core business. The company said in a court filing this month that four states were seeking $1.4 trillion in penalties over accusations it designed its Facebook and Instagram platforms to addict young users and misled the public about their safety. Meta had warned in April that legal and regulatory blowback in the European Union and the US over youth social media issues "could significantly impact" its business and financial results. The company said on Wednesday that it continued to see this scrutiny. On the call, Meta CFO Susan Li said second-quarter operating income would have increased 9% year over year without the company's legal charges and severance expenses. Operating income actually fell 8%. "We continue to see scrutiny on youth-related issues in several markets and have a number of youth-related trials scheduled for this year in the US, which may ultimately result in a material loss," she said in the company's earnings statement.

The AI trade is now driven by results, not hype: Yardeni By Investing.com

Investing.com -- Investors have grown more selective about AI hyperscaler stocks, scrutinizing individual companies' capital spending plans and revenue projections rather than investing on faith, according to financial research firm Yardeni Research. The 2026 capital spending plans of four major hyperscalers -- Amazon, Alphabet, Microsoft and Oracle -- total roughly $600 billion and are still climbing, up from $309 billion in fiscal 2025. Much of this year's planned capacity buildout is being pushed into 2027 and beyond due to delays tied to power, equipment and local permitting. Still, Yardeni sees the pattern as "one of delay, not retreat," noting that industry researchers like Sightline Climate count just nine cancellations among the 777 large data center projects it tracks. Backing that spending is a substantial contracted revenue base. Remaining performance obligations (RPOs), revenue customers have contracted for but that hasn't yet been delivered, total more than $2.3 trillion across the four hyperscalers for fiscal 2026, led by Microsoft's $678 billion and Oracle's $638 billion. One risk flagged by Yardeni is customer concentration, particularly whether OpenAI and Anthropic can meet their contracted compute commitments. S&P downgraded Oracle's credit rating to BBB- in July, citing its exposure to OpenAI as a key risk to the company's debt obligations. The funding structure behind the buildout has also changed. Hyperscalers previously financed capital spending largely from their own cash flow, but that has shifted as spending needs have outgrown free cash flow. Alphabet posted its first-ever quarter of negative free cash flow in the second quarter of 2026, and Amazon's trailing-12-month free cash flow swung to a $7.6 billion outflow. External capital, mainly debt, funded 26% of hyperscaler capital spending in 2025, a share expected to rise to 33% this year and roughly 35% by 2027, according to Goldman Sachs estimates cited in the note. Cloud revenue growth across the group has been strong. Microsoft Cloud posted $214.3 billion in fiscal 2026 revenue, up 27% year-over-year; AWS posted $134.7 billion over the four quarters through June, up 50%; Google Cloud posted $77.7 billion, up 60%; and Oracle Cloud posted $34.0 billion, up 39%. Investors are increasingly distinguishing between hyperscalers rather than treating them as a single group, weighing each company's AI spending plans, contracted backlog, and actual cloud revenue delivered, Yardeni noted. Oracle shares remain down 28% year-to-date on concerns over negative free cash flow and OpenAI reliance, while Microsoft shares had been down 19% before rebounding on strong cloud results. Alphabet is up 20% year-to-date and Amazon roughly 18% following its AWS earnings report. "The AI trade no longer rests on blind faith, as in the initial days of AI euphoria, but on results," the firm said.

Meta Platforms: Meta cash flow craters as Mark Zuckerberg doubles down on AI spending

Meta Platforms reported a 91% drop in second-quarter free cash flow on Wednesday, underscoring the financial strain of the social media giant's costly AI buildout amid an uncertain payoff. The Facebook and Instagram parent company reported free cash flow of $784 million in the second quarter ended June 30, down from $8.55 billion a year earlier, sending its shares down 10% in extended trading. Meta's cash flow wipeout echoed Alphabet's, which last week reported its first-ever cash-flow-negative quarter, stunning even the most bullish of Wall Street investors who sold off the Google owner's stock. Meta CEO Mark Zuckerberg said on an earnings call: "We expect that a significant portion of our compute is going to go towards training our models, growing our core business and delivering personal agents and new products, but we also expect to grow a large business serving large customers as well." Facing repeated ⁠questions from ⁠analysts about the company's AI strategy and how he planned to capitalize on the enormous sums Meta is investing in the technology, Zuckerberg said the spending reflected its bet that personal AI agents would become a huge consumer business. He argued the company was uniquely positioned to commercialize the technology at scale despite the near-term costs. Meta's free cash flow was the lowest since late 2022, when the company was facing similar investor scrutiny over spending on its ambitious metaverse bet. Its Reality Labs division has posted more than $80 billion in operating losses. Microsoft reported a 23% drop in free cash flow in the June quarter from a year earlier, but any concerns about its pace of spending were alleviated by surging growth in its high-margin cloud business. The software giant's shares rose 4.4% in aftermarket trading on Wednesday. FEVERISH SPENDING The feverish spending on AI infrastructure comes as Meta, which continues to be an almost entirely advertising-driven business, attempts to diversify its revenue sources. The ⁠company reported second-quarter earnings per share of $6.18, missing analysts' average estimate of $7.22, according to data compiled by LSEG. "Meta's AI spend was easier to celebrate when margins were expanding. It's harder to celebrate now that the costs are showing up in the numbers," said Mike Proulx, a senior executive at research firm Forrester. "Meta isn't spending billions on AI ⁠infrastructure just to make Facebook and Instagram better. The company believes AI can create entirely new businesses." Meta expects to spend as much as $145 billion on AI infrastructure this year, about double last year's investment, and a significant portion of Big Tech's more than $700 billion projected outlay on the technology in 2026. Reuters reported this month that Meta plans to double overall computing power to 7 gigawatts this year and to double it again, to 14 gigawatts, next year. It currently has 32 data centers across the globe in operation or under construction. The company raised the lower end of its capital expenditure outlook on Wednesday. It now expects 2026 capital expenditure to be between $130 billion and $145 billion, compared with its prior forecast of $125 billion to $145 billion. At the beginning of the year it had forecast spending between $115 billion and $135 billion. One bright spot in the results was Meta's revenue, which jumped 28% to $60.8 billion in the second quarter, the quickest pace of growth since the fourth quarter of 2021, barring the first quarter of 2026. Usage of Meta's apps rebounded after a quarterly dip in April. The company reported 3.6 billion daily active people, a 3% rise year-over-year. Luke Stillman, a managing director at research firm Madison and Wall, said: "Meta's underlying ad business that's financing everything though is still performing well and is our main focus." META'S LEGAL TROUBLES While investors are scrutinizing Meta's AI spending, it faces legal risks ⁠related to its core business. The company said in a court filing this month that four states were seeking $1.4 trillion in penalties over accusations it designed its Facebook and Instagram platforms to addict young users and misled the public about their safety. Meta warned in April that legal and regulatory blowback in the European Union and the U.S. over youth social media issues "could significantly impact" its business and financial results. The company said on Wednesday that it continued to see this scrutiny. It also had severance expenses associated with a sweeping restructuring it has been carrying out to reorient its inner workings around AI. In May, it laid off about 10% of its workforce, or around 8,000 employees, as part of that overhaul. On the earnings call, Meta Chief Financial Officer Susan Li said second-quarter operating income would have increased 9% year over year without the company's legal charges and severance expenses. Operating income actually fell 8%. "We continue to see scrutiny on youth-related issues in several markets and have a number of youth-related trials scheduled for this year in the U.S., which may ultimately result in a material loss," she said in the company's earnings statement.

Citi says consensus underestimates AI revenue and returns By Investing.com

Investing.com -- Citi said consensus estimates continue to underestimate future revenue growth and profitability tied to AI, despite hyperscaler cloud revenue accelerating to 48% in the second quarter from 39% in the first quarter. The firm noted that collective backlog also accelerated to 151% versus 143% last quarter, reflecting continued acceleration in enterprise adoption. Cash Returns on Cash Invested over the last 12 months was relatively steady at 28% versus 29% in the first quarter. Citi estimates that consensus continues to underestimate revenue growth by 500 basis points for 2027 and 900 basis points for 2028, accounting for the acceleration in capital expenditures in 2024 and beyond. Cash Returns on Cash Invested across the hyperscalers was 28% in the second quarter, essentially flat with the first quarter despite the increase in inventories at Alphabet related to TPU sales. Returns are benefiting from higher compute prices driven by strong AI demand, resulting in accelerating revenue and backlog growth as well as margin expansion with hyperscaler EBITDA margins holding at 43% in the second quarter versus 43% in the first quarter. Hyperscalers continued to signal sustained infrastructure intensity, with consensus raising combined 2026 capital expenditure forecasts by 0.8% following results. The aggregate 2026 capital expenditure forecast is now $730 billion, a 77% increase versus 2025. Meta revised its guidance range to $130 billion to $145 billion versus its prior outlook of $125 billion to $135 billion, while Google lifted its range by 7% at the midpoint to $190 billion to $205 billion due to "an acceleration in delivery of capacity to meet growing demand." Amazon's outlook was raised by $20 billion to approximately $220 billion, citing higher memory costs. Cloud service providers' revenue and backlog growth continue to signal strong revenue growth from enterprise AI applications and services, with GCP leading with a near 20-point quarter-over-quarter growth acceleration. Google, Microsoft, and Amazon's combined backlog expanded to $1.69 trillion in the second quarter versus $1.45 trillion in the first quarter. This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

Wall Street splits on Big Tech's AI bills

STORY: :: Central California / July 30, 2026 :: AI is costing billions and Wall Street expects returns :: Stephen Nellis, Technology Correspondent "The big takeaway from a spate of big tech earnings this week is that AI costs a lot of money to build, but what Wall Street really cares about is whether you have a credible plan in place to make money off of AI once you've built it." "Microsoft and Meta both talked about spending a lot of money to build up data centers to deliver AI, but one stock, Meta, got punished while another stock, Microsoft, got rewarded. I think what you have to understand is that there's a huge difference in how these companies want to go after AI." "Meta is looking at weaving AI into all of its existing products that people know about, like Instagram, etc." "Microsoft has a bit of a different approach where what they're pitching is saying, hey, what we plan to make money on is that part of helping the business figure out how to apply AI to the data inside their business." "Apple is a little bit different case from the rest of its big tech peers, and that's because at this point, its business is still mostly selling things like iPhones because it's been very late to AI." "The company had really good sales of iPhones and Macs in the quarter that just ended in late June, but looking ahead to the quarter that we're in currently in the rest of the year, it's actually signaling that this AI data center build out is really gumming up the supply chain in a way that's gonna make it harder for Apple to actually build its consumer devices, even though those devices don't compete directly with these data centers." "And I think you're seeing the market respond to what they think of those different approaches."

Meta narrows annual capex forecast, as AI buildout grows

July 29 (Reuters) - Meta Platforms narrowed the range of its forecast for annual capital expenditure on Wednesday, as the social media giant doubles down on building a fleet of data centers to expand its AI computing power. The Facebook parent now expects 2026 capital expenditure to be between $130 billion and $145 billion, compared with its prior forecast of $125 billion to $145 billion. At the heart of Meta is its advertising business, with Reels battling TikTok and YouTube Shorts for dominance in the short-video market and Threads taking on Elon Musk's X, while AI powers more precise ad targeting and recommendation systems to boost user engagement. Trend advisory firm Madison and Wall said in June it expects ad revenue to rise by 8.3% to $1.42 trillion in 2026, benefiting from several cyclical sports events, including the Winter Olympics and the FIFA World Cup. Social media advertising is expected to rise 14% to $421 billion during the year. Ad sales are also powering CEO Mark Zuckerberg's pursuit of superintelligence -- a hypothetical concept where AI surpasses human intelligence in every possible way -- and the development of its Meta AI assistant and AI smart glasses. Meta results come days after Alphabet's first cash burn on record in the second quarter jolted investors, as soaring AI spending strains one of the world's most profitable companies. The feverish spending by Big Tech is expected to reach well above $700 billion this year, primarily on AI, while Morgan Stanley has pegged the estimated spend at more than $1 trillion for the next year. Meta is building several gigawatt-scale data centers across the U.S., including one in rural Louisiana, a project it expects to expand to 5 GW of compute capacity, with investment increasing to more than $50 billion. Media reports, including by Reuters, said earlier this month that Meta was in talks to lease computing power to Anthropic in a potential deal worth up to $10 billion over two years. Meta on Tuesday formed a venture for its El Paso, Texas, data center, which is 80% owned by BlackRock and 20% by Meta, and nearly resembles its arrangement with Blue Owl Capital for the Louisiana project, as the company looks to keep debt off its balance sheet. While investors are scrutinizing Meta's AI spending, it faces privacy-related risks tied to its smart glasses. The company said in a court filing this month that four states were seeking $1.4 trillion in penalties over accusations it designed its Facebook ?and Instagram platforms to addict young users and misled the public about their safety. Meta had warned in April that legal and regulatory blowback in the European Union and the U.S. over youth social media issues "could significantly impact" its business and financial results. (Reporting by Katie Paul in New York and Jaspreet Singh in Bengaluru; Editing by Shilpi Majumdar and Nia Williams)