Wall Street is becoming less convinced that Big Tech’s huge AI spending will pay off soon. Investors now want proof that billions of dollars being spent on artificial intelligence are leading to real profits instead of just bigger expenses.
Microsoft and Meta are under pressure as they prepare to report quarterly earnings on Wednesday. Investors are expected to focus less on revenue growth and more on whether the companies can justify their massive AI investments. The concern grew stronger after Alphabet’s earnings last week. Although Google’s parent company beat Wall Street expectations on many financial metrics, its stock suffered its biggest one-day drop in more than a year.
Alphabet’s shares fell because of its soaring AI spending. The company reported negative free cash flow for the first time since becoming a public company after sharply increasing capital expenditures (capex). Investors are now wondering whether Microsoft and Meta could face the same reaction. Since both companies are among the world’s biggest AI spenders, Wall Street wants to see whether their spending is actually creating enough business growth, according to Bloomberg.
Microsoft, Meta, Alphabet and Amazon are currently spending the most on AI infrastructure. These companies are investing heavily in data centres, AI chips and computing capacity to stay ahead in the AI race. However, analysts believe Microsoft and Meta have a harder job than Alphabet. According to Bloomberg, investors see Alphabet as having stronger leadership in AI, making it easier for Google to defend large investments.
Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder, said Microsoft and Meta face an even tougher challenge. He said, “If Alphabet couldn’t convince investors that its spending is justified, then Microsoft and Meta are probably facing a tougher road to do the same”, via Bloomberg. Ghriskey added that investors still need reassurance. He said, “Both have some work to do to reassure investors.”
Microsoft: Investors are watching AI spending and cloud growth
Microsoft is expected to spend a record amount on AI infrastructure. Its capital expenditure, including capital leases, is expected to exceed $42 billion in the latest quarter. That would bring Microsoft’s total AI-related spending in fiscal 2026 to around $146.6 billion. Bloomberg said this would be the highest annual capex in the company’s history.
Microsoft’s spending has nearly doubled compared with a year earlier. The company spent about $24.2 billion in the same quarter last year. Wall Street is already looking beyond this year. Analysts expect Microsoft’s AI spending to rise above $230 billion in fiscal 2027. At the same time, Microsoft’s free cash flow is expected to shrink sharply. Analysts expect adjusted free cash flow to fall to about $32 billion, down from $62.3 billion in fiscal 2026.
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Investors want to know whether Microsoft’s AI spending is helping Azure grow faster. Azure, Microsoft’s cloud-computing business, is expected to report nearly 40% revenue growth this quarter, according to Bloomberg. But even strong cloud growth may not satisfy investors. Alphabet’s cloud business grew more than 80%, beating expectations, yet investors still sold the stock because of AI spending concerns.
Technology analyst Paul Meeks believes Microsoft faces growing competition. He said, “For Microsoft, I think the story is cloudier”, via Bloomberg. Meeks added that Google appears to be gaining ground. He said, “It looks like Google is taking share from everybody.”
Meta: Bigger spending, weaker cash flow
Meta is also planning massive AI investments. Analysts expect the company to spend about $135.6 billion in capital expenditure during 2026, rising to over $175 billion in 2027. To pay for these investments, Meta has started borrowing more money. The company has been selling debt and is considering raising tens of billions of dollars through a stock offering. Meta’s cash position is expected to weaken significantly. Analysts expect free cash flow to fall below $1 billion this year, compared with $46 billion in 2025. Meta’s free cash flow is expected to turn negative in 2027 before recovering in 2028.
Tim Ghriskey warned investors not to expect strong cash generation. He said, “If you’re looking for cash flow, you’re not going to find it here”, via Bloomberg. Ghriskey also said investors need patience. He added, “There’s a future for them, but the near-term ROI is tough, and it takes a lot of faith to own the stock.”
Unlike Microsoft, Google and Amazon, Meta does not have a cloud-computing business. This means it has fewer ways to earn money directly from its expensive AI infrastructure. Analysts also expect the company’s revenue and profit growth to slow over the coming years.
Wall Street is demanding returns, not just spending
The Wall Street Journal said investors are now “practically begging AI’s big spenders to blink.” This means shareholders want companies to slow down AI spending instead of continuing to increase investments. Alphabet’s decision to increase capital spending by another $10 billion this year frightened investors. The company expects around $200 billion in annual capex, pushing free cash flow into negative territory.
Tesla also faced investor pressure. Even though its AI spending is much smaller than Big Tech’s, increasing planned spending to $5.8 billion caused its shares to fall about 12% after earnings. The Wall Street Journal believes Meta has the biggest reason to reduce spending. The company has fewer businesses that can quickly generate revenue from AI and carries more financial pressure than Microsoft or Alphabet, according to WSJ.
Meta’s AI strategy has faced several challenges. These include leadership changes, reorganisations and technical delays, along with heavy spending on products like virtual reality headsets and Ray-Ban smart glasses that have yet to generate major financial returns.
Needham analyst Laura Martin criticised Meta’s investment strategy. She wrote, “We believe Meta’s strategy diffusion wastes shareholder capital”, via WSJ. Investors could pressure Meta again if AI spending keeps rising without clear returns. However, it noted that CEO Mark Zuckerberg strongly believes in AI, making spending cuts less likely.
Broader market worries are adding to pressure
Reuters reported that investors are becoming increasingly nervous about AI valuations, adding pressure on technology stocks. Chip stocks have also come under pressure as investors question whether the AI boom can continue at its current pace.
South Korean memory-chip maker SK Hynix reported a sixfold jump in quarterly profit, but its shares still fell nearly 10%. This showed that even strong earnings are no longer enough to satisfy investors. Jake Seltz, portfolio manager at Allspring Global Investments, believes recent selling may be exaggerated. He said, “The selloff in chip stocks looks overdone, but volatility should be expected whenever the market finds reasons to question the durability of the AI cycle”, via Reuters.
Wall Street is no longer rewarding Big Tech simply for spending heavily on AI. Investors now want clear evidence that these multi-billion-dollar investments are producing stronger revenue, healthier cash flow and profitable long-term growth. Microsoft and Meta’s earnings will be closely watched to see whether they can restore investor confidence after Alphabet’s disappointing market reaction.