The company’s announcement on Wednesday that it would increase its 2026 capital expenditure forecast alongside its second-quarter earnings report unsettled investors, who are growing more cautious about the enormous costs involved in building AI infrastructure.
Alphabet’s shares dropped 7% on Thursday following the report, while other major technology companies, including Amazon, Meta and Microsoft, also declined. The market reaction highlighted a broader concern among investors: whether the billions being poured into AI data centers will generate sufficient returns or create a prolonged period of heavy spending and weaker cash flow.
The three other major technology giants are expected to release their quarterly results later this week, with investors closely watching whether they will also increase their infrastructure budgets.
Wall Street’s Changing View on AI Infrastructure Spending
For much of the past year, investors rewarded major technology companies for increasing capital expenditure, viewing the spending as evidence of strong AI demand and future revenue opportunities.
Alphabet received particularly strong support from Wall Street. The company’s stock has climbed roughly 70% over the past year, helped by rapid growth in its cloud business and increasing adoption of its Gemini artificial intelligence models and services in a market where OpenAI and Anthropic remain major competitors.
However, after Alphabet’s latest earnings report, investors appeared less willing to overlook rising costs.
Mark Mahaney, head of internet research at Evercore ISI, wrote in a note Wednesday that Alphabet’s increased spending “increases the odds of similar behavior” from Amazon and Microsoft.
The upcoming earnings reports from Microsoft and Meta will provide another test of whether investors remain comfortable with the industry’s massive AI infrastructure investments. Amazon is scheduled to report shortly afterward.
Microsoft and Amazon Face Pressure Over Expanding AI Budgets
Microsoft has already signaled the scale of its AI ambitions. In April, the company projected about $190 billion in capital spending and finance leases for the year, including roughly $25 billion linked to higher component costs as demand for AI chips continues to pressure supply chains.
Analysts now expect Microsoft’s spending plans to remain under intense scrutiny.
“If they raise capex again, based on what we saw in the reaction of Google [last week], it’s probably going to lead to selling pressure in the stock,” Cowen analyst Derrick Wood told CNBC.
Analysts surveyed by Visible Alpha expect Microsoft’s capital expenditure and related commitments to reach about $190.1 billion.
Alphabet’s report also pushed expectations higher for Amazon. The consensus estimate for Amazon’s capital spending increased by nearly $2 billion to $207.4 billion, according to Visible Alpha.
Investors Show Signs of ‘AI Fatigue’ as Spending Reaches Record Levels
Amazon has become one of the biggest AI infrastructure spenders. In February, the company projected approximately $200 billion in capital expenditure for 2026, making it the largest spender among major cloud companies before Alphabet raised its forecast ceiling to $205 billion.
Amazon maintained its outlook in April, with CEO Andy Jassy telling investors that the company’s “plan is largely the same.”
Still, analysts believe Amazon may eventually raise its spending target as it invests further in artificial intelligence, custom chips and other technology projects, including its satellite internet initiative.
Jake Dollarhide, CEO of Longbow Asset Management, said Amazon could face difficulty convincing investors in an environment where enthusiasm for AI spending is beginning to cool.
He wrote that the company may struggle “in this environment of growing AI fatigue, the sudden questioning of meteoric capex budget increases and Silicon Valley and the Mag 7 taking on noticeable levels of debt in order to fund the massive data center buildout.”
Debt Levels Rise as Tech Giants Finance AI Expansion
The aggressive AI buildout is already affecting the balance sheets of the world’s largest technology companies.
Amazon’s long-term debt increased 81% from December 31 to March 31, reaching $119 billion. Alphabet’s long-term debt climbed 111% during the first six months of 2026 to $98 billion.
Alphabet, traditionally viewed as one of the strongest cash-generating companies in the world, also reported negative cash flow in the second quarter for the first time.
Despite these concerns, some analysts argue that continued investment remains necessary because demand for AI computing power remains extremely strong.
Wedbush analysts said Alphabet’s results indicated that available computing capacity remains limited compared with demand and described the company’s approach as showing a “willingness to spend.”
They also argued that Amazon’s potential increase in capital spending should not necessarily be viewed negatively.
“We view the trade-off as worthwhile given AWS’s re-acceleration and Amazon’s expanding platform advantages across Bedrock, Alexa and its logistics network,” the analysts wrote.
Google Gains Ground in Cloud, but AWS Still Leads
Alphabet’s cloud division has been one of the strongest performers in the industry.
Although Amazon Web Services remains the largest cloud infrastructure provider globally, Google Cloud has been rapidly narrowing the gap. Google Cloud was about 30% the size of AWS in 2020 but reached nearly 50% of AWS’s size by the first quarter of 2026.
The business recorded 82% growth in the second quarter, its strongest expansion rate since at least 2020, following 63% growth in the previous quarter.
AWS revenue increased 28% in the first quarter, while analysts expected nearly 32% growth in the second quarter. Microsoft’s Azure and other cloud services grew 40% in the first quarter, with expectations of around 39% growth in the second quarter.
Mahaney noted that cloud demand remains extremely strong but said it would be difficult for competitors to match Google’s growth rate.
“Cloud demand appears relentless,” he wrote, while adding that it was “hard to see anyone matching” Google’s cloud growth rate during the quarter.
Meta Takes a Different AI Infrastructure Approach
Meta stands apart from the other hyperscalers because it does not operate a major cloud business. However, the company is also investing heavily in AI infrastructure.
Meta expects capital spending of about $138.9 billion this year and previously said the figure could rise as high as $145 billion.
Unlike Amazon, Google and Microsoft, Meta is now exploring ways to monetize its infrastructure by offering computing power to outside customers.
For now, Meta continues to generate strong cash flow, giving it more flexibility as it expands its AI capabilities.
Investors Remain Divided on Long-Term AI Payoff
Despite short-term concerns, some investors believe the companies making the biggest AI investments will eventually benefit.
Tiffany Wade, a fund manager at Columbia Threadneedle, which held positions in Alphabet, Amazon and Microsoft at the end of June, said investors may need patience.
“I think that patience is required for these names because I do think that these will be AI winners over sort of the medium and longer term,” Wade said.
Alphabet CEO Sundar Pichai defended the company’s strategy during its earnings call, arguing that using outside vendors to secure additional computing capacity would eventually support stronger margins despite the near-term costs.
Wade agreed with the approach, saying companies should prioritize meeting customer demand rather than limiting growth because of infrastructure constraints.
“You don’t want to be turning away customers because you don’t have capacity,” she said.
As the world’s largest technology companies continue pouring unprecedented sums into artificial intelligence, investors are now demanding clearer evidence that today’s massive spending will translate into sustainable profits tomorrow.