The billions of dollars Big Tech has poured into artificial intelligence (AI) development seems to be paying off as companies show they can produce results, earning Wall Street’s stamp of approval for now.
After months of questions about whether major tech firms were overshooting AI spending, Google, Microsoft and Meta are taking a victory lap after outperforming investors’ lofty expectations.
“It’s showing it’s starting to pay off and companies are doubling down,” Wedbush Securities analyst Dan Ives said, adding, “It puts fuel in the engine for tech to rally more in the second half [of the year].”
Major tech firms promised eye-popping investments in AI heading into 2025, as they pushed to build out the data center infrastructure that is expected to underpin the development of frontier AI models — a frenzy reinforced by President Trump’s own AI infrastructure push.
These investments, already under scrutiny because of their sheer size, faced additional pressure earlier this year with the emergence of DeepSeek. The Chinese AI startup released its R1 model, which the company claimed could compete with top American AI models and was developed with a fraction of the infrastructure.
However, the tech giants seem to have quieted critics so far with the results of their spending.
Google kicked off a series of strong tech earnings last week, beating investor expectations with $96 billion in revenue and $28 billion in net income last quarter. The search giant, which initially planned to invest $75 billion on capital spending this year, also upped the ante with an additional $10 billion investment.
This raised the bar for Microsoft and Meta coming into this week, said Dave Wagner, head of equity and portfolio manager at Aptus Capital Advisors.
Microsoft did not disappoint, reporting $76 billion in revenue and $27 billion in net income last quarter. The company’s cloud computing platform Azure surpassed $75 billion in revenue for the fiscal year, up 39 percent year over year in the last quarter.
It also announced plans to invest another $30 billion in capital spending next quarter, after spending about $88 billion over the past year.
The company’s stock jumped Thursday on the strong earnings report, briefly boosting the company’s market valuation to above $4 trillion. It is only the second company in the world to cross that historic threshold, following Nvidia’s lead last month.
“Microsoft was generally believed to be a winner,” Wagner said. “But people were still trying to understand Azure growth and where all of this CapEx is going and was AI a low-quality business.”
“They had one of the best reports I’ve seen by any company in my 15 years of doing this,” he added.
Meta showed off its strength as well on Wednesday, posting a 36 percent year-over-year increase in net income and a 22 percent jump in revenue. The parent company of Facebook and Instagram also said it expects total capital spending for 2025 to fall between $66 billion and $72 billion, followed by another year of “significant” spending in 2026.
Apple also produced solid results Thursday, posting $94 billion in revenue and $23.4 billion in net income last quarter, even as it faced $800 million in tariff-related costs. The iPhone maker, which has lagged behind on AI, also noted that it plans to “significantly” expand its investments in the technology.
Meanwhile, Amazon failed to impress increasingly demanding investors despite strong results Thursday. It reported a 13 percent year-over-year increase in revenue, with a 17.5 percent rise in revenue from its cloud computing segment, Amazon Web Services.
The massive strength of the tech sector has often provoked parallels to the dot-com bubble in the late 1990s, as investors spent heavily on new web-based companies amid the rise of the internet. The bubble burst in 2000, taking numerous internet startups with it.
However, Wagner argued there are key differences between the dot-com bubble and the current state of the tech sector, making it more sustainable.
“The spending is coming from free cash flow,” he said. “Back in the dot-com bubble, they were utilizing debt and equity to fund growth. These companies are cash cows, and they’re growing amazing free cash flow, putting that back to use. So, it is completely more sustainable, in my mind.”
The more than $300 billion in capital spending from major tech firms is largely directed at the build-out of AI infrastructure. Data centers are expected to be crucial to the continued development of cutting-edge AI.
This has been underscored by Trump’s fixation on boosting the AI build-out. Shortly after taking office, he launched the Stargate Project alongside OpenAI, Oracle and SoftBank, which aims to invest $500 billion in AI infrastructure over the next four years.
His “AI Action Plan,” unveiled last month, heavily emphasized the need to fast-track data center construction, as well as accompanying energy projects.
As Big Tech shells out on AI, its spending is adding more to the nation’s gross domestic product (GDP) than consumer spending.
AI investment has added $152 billion to the GDP in the first half of the year, compared with $77 billion in consumer spending, said Callie Cox, chief market strategist at Ritholtz Wealth Management.
However, this may be more telling about the state of consumer spending than the power of AI, she noted.
“I don’t think you can ignore consumer spending here,” Cox told The Hill. “I’m not sure the story is as much about AI CapEx growing quickly as it is about consumer spending weakening quickly.”
This comes at a shaky moment for the economy, after the U.S. reported weak job numbers Friday, adding just 73,000 jobs in July and making huge new downward revisions to the previous two months.
The Bureau of Labor Statistics (BLS) lowered May and June employment numbers by a combined 285,000 jobs, leading Trump to fire the BLS commissioner.
“The economy is in a tenuous state,” Cox said. “It’s certainly growing, but definitely not growing as quickly as it was last year. Momentum has slowed down, and a lot of that has to do with consumer spending. AI is definitely a bright spot, but it’s certainly not the one driver to watch in this complex economic machine.”
She suggested the AI story is still in its early stages, arguing Big Tech’s massive spending “certainly hasn’t paid off yet.”
“It’s a really great economic story that can lead to many economic benefits down the road,” she added. “But we’re just a few years into that story, and now we have Big Tech and the hyperscalers spending a lot of money to make sure that they’re at the front of that race. But I’m not sure investors have really considered the trade-offs with so much CapEx spending coming from a handful of names.”
