Three tech giants Microsoft The market reacted differently to the release of the latest quarterly financial reports by Google and Meta on the same day, all announcing that they would continue to increase capital expenditures in the field of AI.
On October 30th local time, Alphabet, Google's parent company, closed at $281.9 per share, up 2.45% from the previous day. Microsoft closed at $525.82 per share, down 2.9%. Meta closed at $666.47 per share, a sharp drop of 11.33%.
Microsoft's latest financial report shows that capital expenditures reached $34.9 billion in the quarter ending September 30. Management expects total expenditures to continue to grow sequentially in the next quarter, and that the growth rate in fiscal year 2026 will also be higher than that in fiscal year 2025. Alphabet, Google's parent company, after raising its full-year spending plan for two consecutive quarters, expects capital expenditures in 2025 to further increase to $91 billion to $93 billion. Meta also raised its full-year capital expenditure forecast to $70 billion to $72 billion, up from its previous forecast of $66 billion to $72 billion.
Market concerns about a potential bursting AI bubble have not subsided. Amidst massive spending plans, only Alphabet's earnings report has garnered positive feedback from investors. Analysts point out that a key factor is Alphabet's lower capital expenditure as a percentage of revenue and cash flow, which may have reassured investors. Looking at the quarterly data, Alphabet's quarterly capital expenditure accounted for 49% of its operating cash flow, while Meta and Microsoft's figures are as high as 64.6% and 77.5%, respectively.
"This earnings season, we have seen large technology companies generally continue to increase their investment in data centers." And investments in AI infrastructure. But unlike some of its peers, Alphabet is fully capable of covering these expenditures with its cash flow, and all its businesses are operating at a high speed. "This is in addition to investments in AI infrastructure," said Josh Gilbert, market analyst at trading platform eToro.
Cloud market giants vie for dominance, OpenAI disrupts the game.
Global cloud computing In the market, Amazon AWS maintains its leading position with a market share exceeding 30%, followed by Microsoft Azure and Google Cloud. However, benefiting from the demand driven by generative AI, Microsoft Azure and Google Cloud are growing at a much faster rate than Amazon AWS, reaching approximately 30%-40%, while Amazon AWS's revenue growth in the last quarter was only 17.5%. Amazon will release its latest financial report on October 30th local time, and the growth rate of its cloud business is attracting significant market attention.
In the quarter, revenue from Microsoft Azure and other cloud services grew 40% year-over-year, exceeding the 38.4% forecast by fintech platform Visible Alpha. Management expects Azure revenue to grow 37% in the next quarter at constant currency levels, also exceeding previous expectations.
Microsoft Executive Vice President and Chief Financial Officer Amy Hood stated on the earnings call, "I can say definitively now that we have been in a state of supply shortage for several consecutive quarters. I thought we would catch up, but we haven't." Microsoft expects to continue facing capacity constraints at least until the end of this fiscal year, June 30, 2026.
According to its financial report, Microsoft's revenue for the quarter reached $77.7 billion, a year-on-year increase of 18%, exceeding the expected $75.3 billion. Earnings per share were $3.72, also slightly higher than analysts' expectations of $3.67. Microsoft expects total revenue for the next quarter to be between $79.5 billion and $80.6 billion, a year-on-year increase of 14% to 16%, while the average analyst expectation is $79.95 billion.
Earlier this week, OpenAI announced the completion of its restructuring and also revealed new terms of its partnership with its largest shareholder, Microsoft. The agreement stipulates that Microsoft will hold approximately 27% of the restructured OpenAI. OpenAI has committed to purchasing an additional $250 billion worth of Azure services, but Microsoft will no longer have priority in providing computing services to OpenAI. OpenAI has been eager to accelerate its computing power expansion and has previously complained publicly on multiple occasions that Microsoft's failure to provide sufficient computing power has hampered the progress of its models and products.
During the earnings call, Microsoft Chairman and CEO Satya Nadella stated that even third-party requests must be balanced with first-party business. "There are some requests that we may be able to fulfill, but for the sake of long-term interests, we will say 'no'," he emphasized. "We are very, very happy with this decision. In a sense, every time we reject a request, I feel more at ease the next day."
Following Microsoft's approval this year for OpenAI to build additional computing power independently, OpenAI partnered with Google to utilize Google Cloud services for greater computing power. In addition to OpenAI, Google also reached a six-year, over $10 billion cloud computing agreement with Meta in August, under which Meta will use Google Cloud's servers, storage, and network services. A week ago, Google and its invested AI startup Anthropic announced a formal cloud partnership and a cloud computing deal worth tens of billions of dollars.
According to the financial report of Google's parent company, cloud revenue grew by 34% to $15.2 billion, and artificial intelligence... Revenue is the main driver Google Cloud has become one of Alphabet's fastest-growing business segments, contributing approximately 15% of the company's total revenue. In the third quarter, Alphabet's total revenue reached $102.35 billion, with its core pillar, advertising revenue, growing 12.6% to $74.18 billion, exceeding the expected $71.79 billion.
This month, OpenAI released Atlas, an AI browser built around ChatGPT, and Google's stock price fell 2.21% that day. As more and more AI companies begin to focus on the search field, Google still faces pressure to leverage AI to transform search and maintain profitability. "The continued strong growth of the search business helps to dispel negative sentiment about AI potentially impacting Google's core business," said Matt Stucky, chief portfolio manager at Northwestern Mutual.
Meta's high-stakes bet on AI comes at a hefty price in its talent acquisition campaign.
Unlike Microsoft and Google, Meta does not offer public cloud services, but its investment in AI infrastructure is equally impressive. Management stated in its financial report that it is still developing capacity plans for next year and expects to actively invest to meet the company's significantly growing computing power needs, including building its own infrastructure and signing contracts with third-party cloud service providers.
Meta founder and CEO Mark Zuckerberg stated in a conference call that proactively investing in computing power in advance is the right strategy. Even if Meta's pursuit of superintelligence comes later, the additional computing power can be used to accelerate the company's core business. "In the worst-case scenario, we will only temporarily slow down the construction of new infrastructure and wait for the business to grow and digest existing resources," he pointed out. "The potential benefits for both our existing applications and the new products and businesses we are developing are enormous."
The third-quarter financial report shows that advertising remains Meta's core revenue source, recording $50.08 billion, accounting for 97.7% of total revenue. Total revenue was $51.24 billion, a year-on-year increase of 26%. Although revenue growth exceeded market expectations, total costs and expenses also rose sharply by 32.1% to $30.7 billion.
In addition to raising its capital expenditure forecast for this year to between $70 billion and $72 billion, Zuckerberg even mentioned at a White House dinner last month that the company plans to invest "at least $600 billion" in data centers and other infrastructure in the United States by 2028. Meta CFO Susan Li later explained that this $600 billion refers to the total scale of the company's investment plan in the United States from this year to 2028, covering not only data center infrastructure but also all investments supporting U.S. business operations, including employee recruitment.
Meta has launched a fierce talent war in Silicon Valley this year to quickly catch up with its competitors in the AI race. In July, Meta officially launched its new division, "Meta Superintelligence Labs," encompassing all its foundational models, products, and AI basic research teams. To attract top AI talent to Meta, Zuckerberg not only personally participated in the recruitment process but also offered hundreds of millions of dollars in lucrative salaries to poach employees from companies like OpenAI and Google.
During the conference call, Zuckerberg stated that they have built the industry's most talent-dense lab, with many outstanding researchers, infrastructure experts, and data specialists joining the team, and are working diligently to develop the next generation of models and products.
However, the "talent war" has also directly driven up the company's spending levels. Susan Li added when explaining the 2026 spending outlook that employee compensation costs will become the second largest growth factor after infrastructure costs, "mainly because we will include the salaries of all new employees recruited in 2025, especially AI talent, in the full year's expenses."
(Article source: Blue Whale News)
