Sundar Pichai, CEO of Alphabet.
Source: Alphabet
Both Meta and Alphabet reported quarterly earnings that surpassed expectations on Wednesday, each demonstrating their most robust growth rates in years. Crucially, both tech giants also revised their capital expenditure forecasts upwards for the current year, signaling a sustained and significant commitment to investing in artificial intelligence infrastructure.
Despite these parallel positive financial outcomes, the market’s reaction diverged sharply. Alphabet’s shares surged approximately 7% in after-hours trading, while Meta experienced a 7% decline.
This disparity underscores a recurring theme that has challenged Meta throughout the generative AI revolution. Unlike Alphabet and its fellow hyperscalers such as Microsoft and Amazon, which leverage substantial cloud infrastructure businesses to monetize their AI investments, Meta lacks a comparable direct revenue-generating cloud offering.
This structural difference inherently complicates Meta CEO Mark Zuckerberg’s approach to AI expenditure. For Meta, the return on investment for its AI initiatives must manifest indirectly, primarily through enhanced advertising revenue and improved profitability, rather than through direct infrastructure services.
All four major technology companies released their quarterly results on Wednesday. Alphabet, Microsoft, and Amazon all showcased impressive growth within their respective cloud divisions. Meta is the sole outlier among these giants, with its stock trading lower following the earnings announcement.
Prior to these earnings reports, Alphabet’s stock had seen a remarkable 118% appreciation over the preceding year, significantly outpacing Meta’s 21% gain. Amazon had climbed 40%, and Microsoft had risen approximately 8%.
Analysts at D.A. Davidson noted in a post-earnings report, while maintaining a neutral rating, that “Google is outperforming its peers, which is well reflected in the current valuation.”
The capital expenditure figures across the board are substantial and continue to escalate. This upward trend is partly driven by the escalating demand for memory components, which are currently experiencing a global shortage due to the skyrocketing demand from AI applications.
Alphabet revised its 2026 capital expenditure guidance upwards to a range of $180 billion to $190 billion, an increase from its previous estimate of $175 billion to $185 billion. The company’s CFO, Anat Ashkenazi, indicated that 2027 capital expenditures are projected to “significantly increase” beyond this year’s figures.
This enhanced spending forecast was accompanied by a robust 20% revenue growth, marking the fastest quarterly expansion since 2022. Alphabet’s cloud revenue experienced a remarkable surge of 63%, and the company reported a backlog of $460 billion – nearly double the previous quarter’s figure – attributed to the intense demand for AI infrastructure.
Defending the spending
Meta also increased its capital expenditure guidance for the year, setting it between $125 billion and $145 billion, up from a prior range of $115 billion to $135 billion. The company attributed this adjustment to “our expectations for higher component pricing this year and, to a lesser extent, additional data center costs to support future year capacity.”
Echoing a similar stance taken in October when Meta last raised its capital expenditure forecast, Mark Zuckerberg dedicated significant time during the earnings call to justifying the company’s substantial AI investments. He framed these expenditures as indispensable for future growth while simultaneously reinforcing the core online advertising business.
“The trend over the last few years seems clear: we are seeing an increasing return on the amount that we can improve engagement for people and value for advertisers,” Zuckerberg stated. “This encourages us to continue investing heavily in what we expect will provide increasing value over the coming years as well.”
On the revenue front, Meta’s growth figures are indeed impressive, even exceeding Google’s. Sales jumped 33% year-over-year, representing the strongest expansion period since 2021.
Zuckerberg emphasized the company’s “very focused on increasing the efficiency of our investments.” He highlighted ongoing efforts in developing custom silicon with Broadcom and substantial investments in AMD chips to complement the new Nvidia systems being deployed.
Arda Kucukkaya | Anadolu | Getty Images
Meta CFO Susan Li reiterated to analysts that substantial AI spending is critical “to meet our infrastructure needs and ensure we maximize our strategic flexibility over the coming years.” She further elaborated that the company must secure adequate computing resources to train an increasing number of AI models, develop new products, and support its ambitious AI agent initiatives for both consumers and businesses globally.
Li also noted that Meta’s recent “multi-year cloud deals and our infrastructure purchase agreements” were significant contributors to a $107 billion increase in contractual commitments during the quarter.
Despite these efforts, investors remain keen to see tangible returns from new revenue streams, particularly following Zuckerberg’s comprehensive overhaul of the company’s AI strategy over the past ten months and the recruitment of high-caliber talent. Earlier this month, Meta unveiled Muse Spark, its inaugural proprietary foundation model, signaling a new frontier in its AI development.
In contrast, Alphabet has been successfully capitalizing on its strategic investments, including the development of its in-house Tensor Processing Units (TPUs). These custom chips are increasingly emerging as formidable competitors to Nvidia’s Graphics Processing Units (GPUs).
CEO Sundar Pichai extensively discussed the momentum in the chip segment of the business during Wednesday’s call.
“There’s tremendous demand for both AI solutions as well as AI infrastructure, including massive interest in our GPU offerings, as well as TPUs,” he remarked.
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