The rules have changed for Big Tech earnings season. Beating expectations and providing good guidance isn’t enough anymore, and it’s not entirely clear what the mark for enough is. During Wednesday afternoon’s lightning round of Microsoft, Alphabet, Amazon.com, and Meta Platforms reporting earnings all at once, the reactions were mixed and at times chaotic.
What’s changed is the massive spending spree on artificial-intelligence data centers, on which the four companies will spend a total of around $700 billion this year. With the exception of Amazon, these have been relatively asset-light companies with high free cash flow. Now their balance sheets are starting to look more like manufacturers than tech companies, and free cash flow is dwindling. Amazon already has free cash outflows, and Meta may join it later this year. Because of that pressure, both Meta and Alphabet opted not to buy back any shares in the first quarter after spending a combined $28 billion on share repurchases in the first quarter of 2025.
All this means that investors want to know if the flood of spending will pay off in higher earnings. To meet with investor approval, earnings for these companies need a special “it” factor—not a metric that’s easily defined.
The most unambiguously good news came from Alphabet; its shares soared as soon as the release hit the wire and remained up 10% on Thursday. The smallest of the “hyperscaler” clouds, Google Cloud’s sales hit $20 billion, up 63% from last year, and well above the $18 billion expected. But the even bigger eye-opener was that the segment’s profitability is increasing, even as it quickly scales. The unit’s operating margin hit 33%, up from 18% a year ago, and it accounted for a sixth of Alphabet’s operating income.
On the other end of the spectrum was Meta, which finished on Thursday down 8.6%. Though its performance in the quarter was excellent and guidance was in line with high expectations, the company raised its 2026 capex outlook to as much as $145 billion. Unlike the other three, Meta has no cloud business with which to recoup its investment. Instead, all the computing power Meta buys is for its own uses—for research, back-end efficiencies, and to serve up new AI experiences to the 3.6 billion people who use at least one of Meta’s apps every day. Without cloud sales to add to its income statement, Meta’s return-on-investment story is much fuzzier than the others.
Investors’ confusion around this earnings season can be seen in the immediate reaction to results from Microsoft and Amazon, who together will spend about $400 billion on capex this year. Both are seeing free cash flow come under pressure, though that’s a relative statement. Microsoft’s free cash flow remains quite positive at $73 billion over the last 12 months, according to FactSet, while Amazon has burned cash over that period.
At Microsoft, the stock shot up on the strong results in after-hours trading before heading right back down. It held there until the end of the company’s earnings-call presentation, when Chief Financial Officer Amy Hood gave fourth-quarter guidance that presented a good picture for Microsoft’s cloud, Azure. The stock rallied from $409.50 to $437.34, then began a slow decline as analysts probed Microsoft’s $190 billion in calendar 2026 capex, implying a very heavy spend in the second half of the year when Nvidia’s next-generation server becomes available. The stock was down 3.9% on Thursday.
Amazon also got a topsy-turvy reaction to its earnings. Amazon Web Services is the oldest and biggest cloud, and the company also has expenses from its retail and fulfillment operations. Altogether, the company’s capex will add up to about $200 billion this year. But management was able to turn the narrative when it discussed the AWS backlog, at $464 billion at the end of April, versus $244 billion just four months before.
Shares were as low as $249.61 after the earnings release and were as high as $275.17 just before the opening bell on Thursday morning. But as with Microsoft, the positives were challenged by the spending and pressure on cash flow. The stock finished Thursday roughly flat.
So what do investors want? They’re increasingly looking for clear and present signs that AI is paying off. In the latest quarter, only Alphabet truly made the case.
Coming into the AI boom, Google Cloud was an also-ran among the big clouds. It was heavily reliant on a few big customers and ran at a loss. But the last two quarters have proven that it is a real player, growing faster than Azure and AWS.
Google Cloud sales and profit growth have been far beyond analyst expectations, and the segment’s profit margin is the best it’s ever been, despite mounting depreciation expenses. It’s a first-class part of Alphabet, and now big enough to drive the company’s consolidated results higher.
And it’s all thanks to AI.
A day after its Big Tech peers reported, Apple underlined the impact of AI spending—largely through its lack of it. The company has kept its spending in check amid the AI boom. In the latest quarter, Apple spent just $6 billion on capex.
Sure enough, on Thursday evening, the stock reacted predictably. Apple glided by expectations for its recent quarter and provided an even stronger outlook for the current period. Shares jumped 4% in after-hours trading on the news.
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