Microsoft, Meta and Amazon face AI spending test after Alphabet's 4% drop

Alphabet's 4% post-earnings drop after raising capex to $205 billion set the template for this week's Big Tech reports.

Microsoft, Meta and Amazon report earnings this week as investors scrutinize AI spending after Alphabet's 4% drop for raising capex to $205 billion.

"The market has voted and the results are clear," Michael Burry, the investor known for "The Big Short," said on X, referring to Big Tech stocks with the highest AI capital commitments underperforming since June.

Microsoft reports fiscal Q4 results Wednesday with consensus at $4.21 a share, up from $3.65 a year earlier. Azure grew 40% last quarter, and commercial remaining performance obligation nearly doubled to $627 billion. But capital spending reached $30.9 billion in the March quarter, up 84% from a year earlier, while operating cash flow minus capex fell 22% to $15.8 billion. Meta reports the same day with consensus at $7.13 a share, though its prior quarter included an $8.03 billion income tax benefit that inflated headline earnings by $3.13. Amazon reports Thursday with AWS revenue modeled at roughly $40.5 billion. Trailing free cash flow fell to $1.2 billion from $25.9 billion a year earlier as equipment purchases rose $59.3 billion.

The four companies represent more than $10 trillion in combined market value. Options markets imply moves of roughly 6% for each stock on results day. The Federal Reserve's rate decision Wednesday afternoon adds another variable. Investors are watching fiscal 2027 capex guidance more closely than quarterly earnings per share.

Capex Outgrows Revenue at Every Company

The pattern is consistent across the group. Microsoft's capex rose 84% while Azure grew 40%, roughly twice the pace. Alphabet's roughly doubled against 82% cloud growth. Meta's rose 47% against 33% revenue growth. That gap indicates the payoff from AI investment has not fully arrived. Microsoft's $627 billion backlog is the strongest argument for patience.

Apple, reporting Thursday with consensus at $1.88 a share, is the capital-light outlier. It generated more than $28 billion in operating cash flow in the March quarter and authorized $100 billion of share buybacks. The call also marks Tim Cook's final earnings as chief executive, with John Ternus taking over Sept. 1.

The guidance these companies deliver this week will determine whether the AI trade resumes or corrects further. Investors should watch fiscal 2027 capex plans — any step above Microsoft's signaled $190 billion invites the same treatment Alphabet received.

This article is for informational purposes only and does not constitute investment advice.