Wall Street Impatient For Big Tech Returns On Data Center Spending

Microsoft, Amazon and Google all reported surging cloud revenue last quarter. But Wall Street has delivered sharply differing verdicts on each of the three tech giants’ artificial intelligence spending plans, with investors increasingly seeking proof that Big Tech is getting bang for its AI buck.

Amazon, Microsoft and Google together account for 63% of the global cloud market and are the three largest consumers of data center capacity. They are seen as a barometer for investors increasingly nervous about an infrastructure arms race with a price tag approaching $2T.

Their second-quarter earnings, released this week, gave an anxious Wall Street a clearer picture of how the tech giants driving the AI infrastructure boom plan to continue spending. 

Google’s bigger-than-expected spike in spending triggered a sell-off, driving the share price of its parent company, Alphabet, down more than 7%, while Amazon’s similar spending increase was met with enthusiasm that bumped its share price by as much as 15%. Microsoft, meanwhile, left its capital expenditure plans unchanged. Over the next 24 hours, it saw the largest single-day value gain for market value ever by a U.S. company.

These wildly disparate reactions reflect a market that is no longer simply rewarding or punishing tech giants based on the sheer size of the AI outlays. Instead, investors are looking for clear explanations — and evidence — for how massive expenditures on data centers and chips will generate return on investment.

With as much as $400B in debt expected to fuel hyperscale capex over the next 18 months, analysts want tech giants to show that this spending fits within a credible road map to AI profitability. 

“As the free money is going away, investors are starting to look at fundamentals again,” Richard Bernstein, global head of macro investing at Janus Henderson, told The Wall Street Journal. “We’re starting to take out the speculative fervor.”

For now, Big Tech’s AI infrastructure spending is fueling record growth in the overall cloud market. 

The global cloud market grew 43% in the second quarter, its fastest growth rate in eight years, despite the market being eight times larger, according to Synergy Research Group. 

Much of that growth is tied directly to AI, with a year-over-year growth rate for AI-specific cloud services of 165%.

“AI technology has lit a fire under the cloud market and is now driving unprecedented growth,” said John Dinsdale, chief analyst at Synergy Research Group.

Amazon, Microsoft and Google accounted for much of this growth. 

Google reported that its cloud segment revenue grew 82% year-over-year to $24B, with annualized cloud revenues approaching $100B. Annual revenue for Microsoft’s Azure grew 43% to cross the $100B threshold, while Amazon’s AWS saw 37% year-over-year revenue growth last quarter, with annual revenue projected to reach $169B. It would be Amazon’s fastest growth in 18 quarters. 

But the revenue gains from AI still trail far behind the massive sums tech giants are pouring into the infrastructure to support it. 

Google raised its estimated capex for 2026 to as much as $205B, up from the $180B to $190B predicted just three months ago. The ramped-up infrastructure spending means that, despite record revenue, Google is now spending more money than it generates. The company’s leadership acknowledged last week that this negative free cash flow is likely to continue for the foreseeable future.

Amazon is also pushing its free cash flow into negative territory, with AI infrastructure spending well above prior forecasts. The company raised its expected capex for the year to roughly $220B from earlier projections of $200B. 

Of the three cloud giants, only Microsoft left its 2026 capex projections unchanged from the $190B it forecast last quarter. Technically, the company’s projected capex has now dropped to $175B, but the apparent reduction is the result of an accounting change rather than an actual drop in investment. Microsoft also spent close to a billion dollars less last quarter than it had projected, with capex totaling $41B. 

Wall Street rewarded Microsoft for closing the gap between its AI spending and revenue. The firm gained half a trillion dollars in market value in the 24 hours following its earnings report as its share price surged 16%.

Beyond the closing revenue gap, Wall Street analysts also highlighted the fact that, despite its spending, Microsoft’s free cash flow was nearly $20B, while Amazon and Google’s spending now exceeds total revenue. Microsoft also carries significantly less debt than its cloud competitors.

Taken together, the metrics suggest that Microsoft’s infrastructure build-out is moving closer to financial self-sufficiency and away from being a debt-fueled bet on AI’s future.  

“I think there’s a recognition that this trend can’t go on forever,” Jack Ablin, founding partner at money manager Cresset, told the WSJ.

This need for a road map to return on AI infrastructure investments is at the core of why Google and Amazon saw their share prices head in opposite directions, despite both companies sharply increasing AI capital spending and seeing free cash flow slip into the red, analysts say. 

Although Amazon and Google are expected to spend roughly the same amount on AI infrastructure this year, Google is working with a much smaller revenue base. Google’s cloud business, despite its earnings nearly doubling last quarter, is still expected to generate more than $68B less in annual revenue than AWS. 

Analysts also emphasized that Amazon has been more convincing in articulating how its AI investments will generate returns. CEO Andy Jassy centered his comments to investors Thursday around this long-term outlook, telling analysts that the company’s visibility into demand through 2028 gives him confidence that today’s spending will lead to future profitability. 

“At this level of spend and higher, we have clear line of sight to strong financial returns,” he told investors. 

Google, by contrast, faces questions about the long-term competitiveness of its AI products. The company has struggled to make breakthroughs with its foundational AI models in recent months, encountering technical problems and falling behind other model developers both in the quality of its AI models and the quantity of new models it releases.

These struggles have made the firm's case for $220B in AI spending less convincing than Amazon’s, for whom analysts like Morningstar’s Dan Romanoff expressed confidence.

“The surging demand spans both traditional and AI workloads and clearly supports management’s massive capital investment plans,” Romanoff wrote in a note to investors following Amazon’s earnings call Thursday.