Capex: The Key Metric in Big Tech Earnings

Fasten your seatbelts; the news is breaking rapidly.

Let’s begin with interest rates.

As anticipated by market participants, the U.S. Federal Reserve implemented a 25 basis point rate reduction. However, Chairman Jerome Powell tempered expectations regarding another potential cut in December, which the market had priced in with a high degree of certainty, stating that it “is not a foregone conclusion.” This statement injected a dose of realism into the markets, contributing to declines in many stock prices and a rise in Treasury yields.

Turning to Big Tech earnings.

Alphabet, Meta, and Microsoft have all released their latest earnings reports, surpassing analyst projections on both revenue and earnings per share (EPS). A standout achievement was Alphabet’s quarterly revenue exceeding $100 billion for the first time, marking a significant milestone for the tech giant.

Finally, let’s delve into capital expenditure (capex).

Capex figures represent the critical takeaway from these earnings reports. Alphabet, Meta, and Microsoft are signaling a substantial increase in their investment plans. This surge in spending is indicative of the intense competition and rapidly evolving landscape of the technology sector, particularly in the realm of Artificial Intelligence (AI).

Alphabet has revised its capital expenditure forecast for fiscal year 2025, increasing it to a range of $91 billion to $93 billion, up from its previous estimate of $75 billion to $85 billion. Moreover, according to CFO Anat Ashkenazi, the company foresees a “significant increase” in capital expenditure for 2026. This increased investment is directly linked to supporting the expansion of its data center infrastructure and AI capabilities.

Meta, demonstrating similar confidence, has raised the lower end of its capex guidance for the year to $70 billion from $66 billion. CEO Mark Zuckerberg defended this aggressive investment strategy during the earnings call, stating, “Being able to make a significantly larger investment here is very likely to be a profitable thing.” Meta’s focus is primarily on building out the infrastructure to support its ambitious metaverse initiatives and advancing its AI research.

Microsoft’s Chief Financial Officer, Amy Hood, reported that capital expenditure in the firm’s fiscal first quarter reached $34.9 billion, exceeding the $30 billion figure projected in July. Furthermore, the capex growth rate for fiscal 2026 is expected to surpass that of 2025, underscoring Microsoft’s commitment to investing in its cloud computing platform, Azure, and its burgeoning AI services.

The driving force behind this surge in capex is the relentless pursuit of artificial intelligence dominance. The insatiable demand for AI services across diverse sectors, including cloud computing, autonomous vehicles, and personalized experiences, is fueling this investment frenzy. While concerns about an AI bubble have been circulating, the current capex projections from these tech giants suggest that the AI boom has staying power, at least for the foreseeable future.

The implications of these massive capital expenditures are multifaceted. Firstly, they reinforce the competitive advantage of these established tech giants, creating barriers to entry for smaller players. Secondly, they will drive innovation across the AI landscape, leading to breakthroughs in algorithms, hardware, and applications. Finally, they will have a significant impact on the broader economy, creating jobs and stimulating investment in related industries.

That concludes our coverage for today. A brief respite is in order – until the highly anticipated meeting between U.S. President Donald Trump and China’s Xi Jinping later today.

Trump-Xi meeting nears with high stakes and hopes, but few details

A high-stakes meeting between U.S. President Donald Trump and Chinese President Xi Jinping could yield a breakthrough in the trade relationship between the two economic superpowers.

However, while both the Trump administration and Beijing are conveying optimism leading up to the meeting, specific summit details remain blurred. Pundits express reservations regarding the White House’s pronouncements of securing a favorable resolution. The complexities surrounding intellectual property rights, market access, and national security concerns continue to cast a long shadow over the trade negotiations, demanding careful monitoring as developments unfold.

— Kevin Breuninger