Meta, Microsoft Gain Ground On Amazon As AI Arms Race Accelerates

The world’s largest tech companies are ramping up their spending on artificial intelligence infrastructure, they revealed on earnings calls this week. As AI boosts Big Tech’s revenues, Wall Street’s concerns about the wisdom of spending hundreds of billions of dollars on data centers are beginning to fade. 

Amazon, Microsoft, Google and Meta are on track to make close to $400B in capital expenditures this year, the vast majority of it to build data centers and other infrastructure to support AI. These massive AI investments are well above what each of the tech giants predicted earlier this year, and all four firms plan to boost their AI spending even further in 2026. 

In past quarters, Wall Street was apprehensive about the enormous scale of Big Tech’s AI spending, with widespread fears in investor circles earlier this year that major cloud providers had built more data center capacity than they needed. But now, analysts and investors appear to be more on board with the AI arms race. 

Shares of Microsoft and Meta rocketed to record highs Thursday, together adding half a trillion dollars in value to the stock market after the firms reported quarterly earnings showing that their unprecedented AI investments are driving revenue increases.  

Amazon, however, posted more modest revenue growth than its cloud competitors, leading its stock price to fall sharply, showing that investors still want to see that AI spending is directly fueling immediate, short-term growth.

But many analysts say they are unfazed by the massive scale of Big Tech’s growing AI investment, and any squeamishness about annual capex that is now on par with the GDP of South Africa is largely a thing of the past. 

“The capex number is just getting completely overblown. If you're spending the money, you're getting the return, who cares what they spend?” Jefferies senior analyst Brent Thill said on a webcast after Meta’s earnings report. “I don't think this is a question of ‘Is this paying off or not?’ I think it's pretty clear it's paying off, and you're seeing it already in the numbers.”

Just three months ago, the prevailing narrative on Wall Street around AI spending was noticeably different. Investors were increasingly concerned that major tech firms were overbuilding data centers and digital infrastructure to support AI. 

Fears of an imminent dip in demand for data center capacity grew following the release of an innovative AI model by Chinese firm DeepSeek that was touted as yielding similar results as other large language models while using far less computing power. In the weeks that followed, reports that Microsoft and AWS were canceling or pausing a handful of planned data center projects added fuel to the growing alarm about a potential AI infrastructure bubble.

But tech's big four driving the demand for AI data centers haven't pulled back. Instead, they have scaled up their AI capex at a pace few expected. 

Amazon’s second-quarter capex jumped 90% year-over-year to a record $31.4B, the firm reported Thursday, putting the largest global cloud provider on track for annual spending north of $118B. 

Microsoft is running neck and neck with Amazon in terms of the scale of its AI investment, forecasting a record $30B in capex this quarter. The hyperscaler is expected to reach roughly $120B in capex this fiscal year, up from $88.2B in the previous 12 months. 

Google parent Alphabet is also spending $10B more than it anticipated earlier this year, raising its projected annual capex from $75B to $85B.

Although Meta has a fundamentally different business model than the three major cloud providers, the parent company of Facebook and WhatsApp is also aggressively ramping up its spending on AI infrastructure. Meta executives said it will spend close to $72B on data centers this year, and they raised the lower end of the company's capex guidance by $2B.

CEO Mark Zuckerberg suggested the company’s capex could exceed $100B in 2026.

“While the infrastructure planning process remains highly dynamic, we currently expect another year of similarly significant capital expenditures dollar growth in 2026 as we continue aggressively pursuing opportunities to bring additional capacity online to meet the needs of our artificial intelligence efforts and business operations,” the company said in its earnings release Wednesday.

That Big Tech's massive AI investments have been well received by Wall Street reflects hyperscalers’ success demonstrating that these massive expenditures are already having a positive impact on their bottom lines.

Meta’s postearnings stock market pop followed the firm reporting 22% revenue growth in Q2, better-than-expected results that Meta’s leaders attributed to AI driving improvements for ad sales and other existing business lines. 

“The investments it’s making in AI are already paying off in its ads business,” Jasmine Enberg, principal analyst at research firm eMarketer, told The Wall Street Journal.

Major cloud providers, bolstered by their spending on AI infrastructure, also reported revenue growth that surpassed analyst expectations and their own guidance. Alphabet’s quarterly cloud revenue climbed 32% over the prior year, reaching $13.6B. Microsoft reported cloud revenues above $75B for the preceding four quarters, with growth in the most recent quarter of 39% year-over-year.  

Microsoft Chief Financial Officer Amy Hood was one of several tech leaders to make the case in the last week that hyperscalers’ unprecedented capital investments in data centers and other digital infrastructure supporting AI are based on real demand signals, not speculative endeavors based on business cases that have yet to emerge. 

“In terms of feeling good about the ROI and the growth rates and the correlation, I feel very good that the spend that we’re making is correlated to contracted, on-the-books business that we need to deliver and we need the teams to execute at their very best to get the capacity in place as quickly and effectively as they can,” Hood said on Microsoft's earnings call Wednesday. 

While their AI-boosted quarterly results pushed Microsoft’s and Meta’s share prices to new heights, the market’s reaction to Amazon’s Thursday evening earnings report was far more tepid. 

Shares of Amazon were down more than 6% early Friday following an earnings report that showed revenue for the firm’s AWS cloud unit climbing 19% in Q2 to $30.9B — ahead of analyst estimates but sluggish compared to the substantial growth figures posted by its competitors. 

“It's not a miss relative to analyst expectations, but relative to buy-side expectations maybe that was a little bit light, and I think that's why we're seeing the response in the stock,” Wedbush Securities analyst Scott Devitt told Yahoo Finance. 

Amazon CEO Andy Jassy attributed AWS’ slower pace of growth to the “law of large numbers”: AWS is bigger than its competitors, and it is difficult for larger firms to achieve the same growth rate as their smaller rivals.

But some analysts point to a growing perception that AWS, while still by far the largest cloud provider, with a 30% market share, is losing ground in the AI arms race to Microsoft and other cloud providers who invested earlier and more aggressively in AI-specific infrastructure and products. 

AWS’ share of the cloud market has slipped as Microsoft and Google have gained ground. Microsoft’s capex could exceed AWS’ by next year, despite the former having only a 20% share of the overall cloud market. 

“There is a Wall Street finance narrative right now that AWS is falling behind in GenAI with concerns about share, loss to peers, etc.,” Morgan Stanley Managing Director Brian Nowak said on Amazon’s earnings call Thursday.