Big Tech doubles down on AI spending amid bubble fears

A story played out in Wednesday’s Big Tech earnings bonanza that’s become very familiar in this leg of the AI race.

Microsoft, Alphabet, and Meta all surpassed topline analyst expectations around earnings and revenue. All three also upped their estimates of the massive amounts they had spent or plan to spend on AI infrastructure.

Investors were left to pick a narrative. Wall Street cheered Alphabet’s results with an upward swing in share price, while Meta’s share price plummeted (the company also incurred a big one-time tax hit that cratered its profit), and Microsoft shares dipped.

Microsoft clocked $78 billion in revenue and $28 billion in profit; Google reported $102 billion, with profits of $35 billion; and Meta saw $51 billion in revenue and $2.7 billion in profit (after that $16 billion tax expense).

Bubble talk: Steadily simmering talk of an AI bubble has reached a dull roar of late, and that loomed over all three earnings calls. But the actual B word only cropped up once, in an analyst question to Microsoft execs: “How much confidence do you have that the software, even the consumer internet business, can monetize all the investments we’re seeing globally, or frankly, are we in a bubble?”

Microsoft CFO Amy Hood said persistent strong demand justifies the spending, while CEO Satya Nadella said the data center investments are flexible enough to adapt to different kinds of workloads.

“I look at the entirety of these high-value agent systems, and when we look at the efficiency of and fungibility of our fleet, that’s what gives us the confidence to invest both the capital and the R&D talent to go after this opportunity,” Nadella said during the call.

As far as infrastructure spending, Hood said “total spend will increase sequentially” and spending will accelerate next year.

Superspending: Meta has been busily remaking its AI research arm through hundred-million-dollar payouts to top researchers alongside targeted layoffs. CEO Mark Zuckerberg faced questions about monetizing his company’s quest for AGI.

Zuckerberg claimed Meta AI has seen engagement grow, including a tenfold increase in media generation since the launch of AI social video app Vibes in September. Advertising dollars will eventually follow that engagement, he said. He claimed the advertising process will eventually be fully automated.

“Advertisers are increasingly just going to be able to give us a business objective and give us a credit card or bank account, and have the AI system basically figure out everything else that’s necessary, including generating video or different types of creative that might resonate with different people that are personalized in different ways,” Zuckerberg said.

That will come at a heavy price. Meta increased its spending outlook slightly for the year to $116 billion–118 billion (up from $114 billion–$118 billion). Expect that number to be “notably larger” in 2026, CFO Susan Li said.

Google it: Demand for Google Cloud services drove strong growth, with a 34% YoY jump to $15 billion in revenue. Google CFO Anat Ashkenazi said that led the company to also adjust its spending upward to $91 billion–$93 billion from a previous estimate of $85 billion.

Google Chief Business Officer Philipp Schindler said new AI tools were continuing to transform the search experience.

“AI mode continued to drive growth in overall queries, including commercial queries, really creating more opportunities for monetization,” Schindler said. “AI overviews are scaling up and are working for our entire user base.”