The frantic race for AI: Tech giants spend billions thanks to record profits
Jesús Sérvulo González Santiago Millán Alonso
Washington / Madrid -
Tech giants have embarked on a frantic race to develop artificial intelligence (AI). The promises this technology will bring to businesses and homes seem endless, and investors see a lucrative opportunity. But its development requires vast sums of money , which is starting to make Wall Street nervous.
Amazon, Alphabet, Apple, Microsoft, and Meta are five of the "Magnificent Seven," the group of giants that also includes Nvidia and Tesla . These are the companies that rule Wall Street. This week, they presented their results for the last quarter of their fiscal year, a period that varies among them. They reported a combined profit of $157.813 billion, representing a 37% increase over the previous year, not including a $15.390 billion provision by Meta following the passage of the Big and Beautiful Act signed into law by Donald Trump.
The Magnificent Seven represent approximately 25% of Wall Street's capital, an extraordinary dominance by historical standards. Their stock market behavior fits the expression "irrational exuberance," coined by Alan Greenspan, the market guru who chaired the Federal Reserve at the end of the last century and the beginning of this one. Nvidia became the first company this week to reach a market capitalization of five trillion dollars . It is the first time in history that this milestone has been reached. Apple and Microsoft have also surpassed the four trillion mark. And they have accumulated double-digit stock market gains so far this year, fueled by the AI phenomenon.
The staggering earnings figures are fueling the tech giants in the race for AI. This competition brings them more business, but it also consumes massive amounts of capital. This strategy is starting to worry analysts. The world's seven largest tech companies generated revenues of $588.768 billion, a 17% increase. But they have announced investments of nearly $365 billion for next year. Investors are beginning to wonder if they are facing a bubble, and whether these giants will be able to make such colossal investments profitable.
Meta, Microsoft, Alphabet, and Amazon announced this week a sharp increase in capital expenditures during the last quarter and acknowledged that they will increase them again next year due to plans to deploy new digital infrastructure related to artificial intelligence (AI), especially chips and data centers. This scenario has reopened doubts. Too much money in too little time.
“Companies seem to be engaged in an arms race and feel compelled to invest heavily simply because their competitors are doing the same. The fear of losing market share if they fall behind is driving spending to potentially excessive levels,” says Dirk Steffen, head of European investments at Deutsche Bank, in a report analyzing whether there is a risk of a bubble in the AI sector.
Meta plans to invest around $71 billion in AI this year , up from the $66 billion previously projected, and expects significantly higher year-over-year growth by 2026, reaching at least $101 billion. Facebook's parent company recorded its worst trading session in three years yesterday (-11.3%) due to investor doubts about the company's ability to recoup its massive investment in AI. The company founded by Mark Zuckerberg saw its profits plummet by 83% after recognizing a $15.93 billion accounting hit from the implementation of Trump's Big Beautiful Act , which requires it to set aside funds for taxes.
Alphabet, Google's parent company, estimates it will allocate approximately $92 billion to capital expenditures for AI development, up from its previous forecast of $85 billion. Microsoft expects to increase its investment pace in its 2026 fiscal year . While not providing specific figures, analysts agree this represents an investment of between $120 billion and $140 billion. The company reported that it allocated nearly $34.9 billion to capital expenditures in the last quarter alone. Amazon, which released its earnings yesterday , again increased its capital expenditure forecast for the full year by 6%, to $125 billion.
The company chaired by Jeff Bezos announced this week that it will lay off about 14,000 workers from its corporate area in light of advances in digitalization.
“Microsoft and Alphabet have acknowledged capacity limitations that restrict AI-related revenue growth, while Meta recognizes that it operates in a state of computing capacity shortage. We continue to believe that we are in the early stages of a tipping point in the growth rate of AI adoption that will significantly push upward estimates across the supply chain and technology infrastructure of companies exposed to this growth,” says Heath Terry, analyst at Citi Research.
Meta specified that capex, an indicator companies use to refer to long-term productive investments or capital expenditures, totaled $19.374 billion in the third quarter, a 110% increase compared to the same period last year. Meta CEO Mark Zuckerberg stated he was not concerned about excessive spending on AI infrastructure.
Microsoft is trying to allay investor concerns. This week, during its earnings presentation, the company highlighted a 32% increase in cash flow to $45.1 billion, with free cash flow rising 33% to $25.7 billion. Microsoft's Chief Financial Officer, Amy Hood, acknowledged during the conference call with analysts that the company cannot meet current demand for AI, despite spending billions on its development. "I thought we were going to catch up," she said, according to Bloomberg. "We're not. Demand is increasing. It's not increasing in just one place. It's increasing in many places." Investors have also punished the company following the earnings report. Yesterday, its stock fell by almost 3%. This comes despite the news this week that Microsoft will acquire a 27% stake in OpenAI , the developer of ChatGPT, valued at approximately $135 billion.
Microsoft's cloud computing subsidiary, Azure, the vehicle through which it channels its AI business, posted a sustained 39% increase in revenue, but this proved insufficient for investors. "A higher growth rate would have provided more reassurance that the investment blitz was worthwhile," Bloomberg notes.
Google has reported that its Gemini AI assistant now boasts 650 million monthly active users, a 44% increase from three months ago. And its cloud platform has signed billions of dollars in contracts in the first nine months of this year, already surpassing the total for the previous two years, according to Alphabet's Chief Financial Officer, Anat Ashkenazi, in a call with analysts.
Unlike its rivals, its shares rose in the markets, gaining 2.45%. In this case, capital expenditures for investments in the last quarter accounted for 49% of Alphabet's operating cash, compared to 64% for Meta and 77% for Microsoft.
Apple is the only one of the major tech companies that seems to be taking a more measured approach . The Cupertino-based company has allocated only $12.72 billion to AI development investments for 2025, 35% more than the previous year, but still far from what its rivals are spending. While many of the largest tech companies are racing to build massive data centers for their AI ambitions, Apple is taking a more modest approach. Instead of buying as many chips as possible, it's purchasing computing power from external partners, an analyst explained to CNBC.
“An industry leader estimates that between three and four trillion dollars will be spent on AI infrastructure by 2030. McKinsey forecasts that capital expenditures on data centers will reach 5.2 trillion dollars over the next five years,” adds Dirk Steffen of Deutsche Bank. “Historical precedent shows that large-scale infrastructure builds often result in excess capacity, which can compress returns if demand falls short of expectations,” he adds.