Hyperscaler Earnings Put AI Spending in Focus

Microsoft, Alphabet and Amazon are due to report third-quarter earnings in the coming days, putting their AI spending and its returns in focus for investors. Together, the three hyperscalers have a market capitalization of $10 trillion. Microsoft and Alphabet are scheduled to report on Wednesday and Amazon on Thursday. Chris Brigati, SWBC’s chief investment officer, said investors are watching whether AI capital spending can produce sustainable revenue growth, which he called a major open question.

The companies have disclosed large planned outlays. Microsoft expects to spend $175 billion in 2026 and $50 billion in the first quarter of 2027. Alphabet forecasts $195 billion to $205 billion in 2026, with no specific 2027 guidance; Amazon plans $220 billion in 2026, also without specific 2027 guidance. Wall Street expects Azure revenue growth of around 45%, Google Cloud growth of around 100% after it grew 82% year over year in the second quarter, and AWS growth of around 38%.

Investors have had mixed reactions to rising AI spending and are seeking clearer routes to monetization. Higher interest rates have raised borrowing costs for AI infrastructure, while companies judged to be spending too aggressively have faced investor pressure. CoreWeave has recently experienced volatility in its stock and bonds. Hyperscalers, however, have established revenue sources and clearer access to equity and debt markets to fund investments.

Investors are weighing the risk of excessive spending against the risk that cuts could leave companies behind in AI development. A pullback could also concern infrastructure and data-center businesses that depend on large capital outlays. Meta’s report the previous week offered a further signal of investor reaction: despite attention to usage of its Muse assistant, the company’s stock fell after it raised the lower end of its 2026 capital-spending range to $135 billion, from $135 billion to $145 billion. In July, Microsoft’s second-quarter results showed growing Azure profits from AI alongside spending that remained in line with prior expectations, a balance other hyperscalers may emulate.

Dan Ives of Yorkville Ives said in an October 23 client note that he expected the three earnings reports to calm markets. He said roughly $850 billion in hyperscaler AI spending this year was set against more than $2 trillion in cloud backlog growing faster than revenue, and argued that capacity, rather than demand, was the constraint. Ives expected spending guidance to rise again, backed by contracted demand rather than speculative capacity building.

Microsoft, Alphabet and Amazon are due to report third-quarter earnings in the coming days, putting their AI spending and its returns in focus for investors. Together, the three hyperscalers have a market capitalization of $10 trillion. Microsoft and Alphabet are scheduled to report on Wednesday and Amazon on Thursday. Chris Brigati, SWBC’s chief investment officer, said investors are watching whether AI capital spending can produce sustainable revenue growth, which he called a major open question.

The companies have disclosed large planned outlays. Microsoft expects to spend $175 billion in 2026 and $50 billion in the first quarter of 2027. Alphabet forecasts $195 billion to $205 billion in 2026, with no specific 2027 guidance; Amazon plans $220 billion in 2026, also without specific 2027 guidance. Wall Street expects Azure revenue growth of around 45%, Google Cloud growth of around 100% after it grew 82% year over year in the second quarter, and AWS growth of around 38%.

Investors have had mixed reactions to rising AI spending and are seeking clearer routes to monetization. Higher interest rates have raised borrowing costs for AI infrastructure, while companies judged to be spending too aggressively have faced investor pressure. CoreWeave has recently experienced volatility in its stock and bonds. Hyperscalers, however, have established revenue sources and clearer access to equity and debt markets to fund investments.

Investors are weighing the risk of excessive spending against the risk that cuts could leave companies behind in AI development. A pullback could also concern infrastructure and data-center businesses that depend on large capital outlays. Meta’s report the previous week offered a further signal of investor reaction: despite attention to usage of its Muse assistant, the company’s stock fell after it raised the lower end of its 2026 capital-spending range to $135 billion, from $135 billion to $145 billion. In July, Microsoft’s second-quarter results showed growing Azure profits from AI alongside spending that remained in line with prior expectations, a balance other hyperscalers may emulate.

Dan Ives of Yorkville Ives said in an October 23 client note that he expected the three earnings reports to calm markets. He said roughly $850 billion in hyperscaler AI spending this year was set against more than $2 trillion in cloud backlog growing faster than revenue, and argued that capacity, rather than demand, was the constraint. Ives expected spending guidance to rise again, backed by contracted demand rather than speculative capacity building.