Is the $725 Billion AI Spending Boom Paying Off?VIEW IN BROWSER
Every time I think about this, it stops me cold. The U.S. Interstate Highway System took 35 years to build. It stretches 48,000 miles, from Maine to California, with every on-ramp and overpass in between. That's enough asphalt to circle the globe nearly twice. The total cost in today’s dollars? About $630 billion. Now think about this… Big Tech is spending $725 billion on the artificial intelligence buildout. And that’s just this year. That’s such a gob-smacking amount of money, it’s hard to even wrap our brains around it. To stack that much cash in $100 bills, you'd need 7,250 pallets. Laid end to end, that’s a line of money stretching from New York to Los Angeles and back – three times. Now, Wall Street wants to know what they’re getting for all of that spending. That’s why all eyes have been glued to the Big Tech reports this earnings season – especially the Magnificent Seven stocks. So, in today’s Market 360, we’ll review three of them: Alphabet Inc. (GOOGL), Amazon.com, Inc. (AMZN) and Microsoft Corporation (MSFT). We’ll also see whether their AI spending is actually paying off. Then, I’ll show you what this means for the next phase of the AI boom, and where the next investment opportunities are emerging. Alphabet Beats – and Keeps SpendingAlphabet reported $5.11 earnings per share on $109.9 billion in revenue, crushing expectations on both counts. The biggest standout was the Google Cloud unit, which reported $20.03 billion in revenue – up 63% from a year ago and well ahead of the $18.4 billion analysts expected. That is a clear sign that Alphabet’s AI investments are translating into real growth. Investors noticed, sending shares up by about 10% yesterday. However, that growth won’t come cheap. Alphabet raised its full-year spending outlook to between $180 billion and $190 billion. It also said that spending will rise “significantly” again through 2027. Amazon Beats Big, but Gets Punished...Next up, we have Amazon. The company reported $2.78 earnings per share on $181.5 billion in revenue in the first quarter, easily beating expectations for $1.62 earnings per share on $177.2 billion in revenue. In other words, a massive beat. AWS, its cloud business, generated $37.6 billion in revenue – up 28% year-over-year and its fastest growth rate in 15 quarters. That should have been enough, but it wasn’t. Investors were looking for AWS growth closer to 30%. But Amazon made it clear that it isn’t pulling back on spending, projecting nearly $200 billion in capex spending in 2026 alone – the same as previous projections. Despite the stellar results, Amazon only rose about 1% on Thursday.
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Microsoft: Incredible AI Numbers, Terrible ReactionAnd finally, we turn to Microsoft. It may have delivered the clearest proof yet that AI is driving real revenue – even if it came with a catch. For its third quarter, the company reported $4.27 earnings per share on $82.89 billion in revenue, topping expectations for $4.04 and $81.46 billion. Azure Cloud grew 40% year-over-year, ahead of the 38% analysts expected. Its AI segment generated $37 billion – up 123% year-over-year. So, Microsoft is converting all that AI spending into meaningful revenue. But the company is still spending heavily to keep up. But Microsoft told investors to expect $40 billion in capex next quarter alone, and $190 billion for all of 2026 – up sharply from an earlier estimate of $150 billion. Next quarter's revenue guidance came in just below Wall Street's consensus. That combination of softer guidance and rising capex was enough to send Microsoft’s shares down 4% on Thursday. Should You Buy These Stocks?So, what did we learn from this week’s earnings? AI demand is real, and these companies are seeing strong growth from it, thanks to their booming cloud revenues. But investors are clearly becoming fickle about the results. They’re also nervous about all that AI spending – and for understandable reasons. Big Tech has already spent about $1 trillion on AI infrastructure. Throw in the $725 billion from this year alone, plus the projected $3 trillion in future spending... it’s mind-boggling. We’re talking about the largest collective investment in history. So, is all this spending actually worth it? Only time will tell. But more importantly, the question is... should you buy these stocks today? And if not, which stocks are more deserving of your money? To answer that, I ran all three through my Stock Grader system (subscription required). As you can see in the table below, the results are mixed... 
In the case of Amazon and Microsoft, strong revenue doesn’t automatically make a strong stock. Right now, my system is flagging real headwinds for both – and this earnings season helps explain why. Alphabet earns a Total Grade of B, making it a “Strong” stock. If you own it, I’m not telling you to sell. But honestly, I think there’s more money to be made elsewhere… The AI Boom Isn’t Slowing Down – but the Winners Are ChangingLet’s go back to that $725 billion number for a second. Think about it. Somebody is supplying all of that infrastructure. The data centers. The servers. The cooling systems. Those companies – the ones enabling the boom – are the real winners right now. But there’s something else none of these earnings calls addressed. There’s a ceiling on what today’s AI can actually do. Cloud revenue can grow 63%. AI segments can surge 123%. But the underlying technology powering all of these systems has a fundamental limitation that more spending alone won't fix. And if we want to really unleash the full potential of AI and do things that actually matter – cure diseases like cancer, build energy sources that never run out or answer some of the deepest questions about the universe – today’s AI simply isn't going to get us there. That’s where a new class of AI computing comes in. Right now, it’s being built quietly behind the scenes to break through that ceiling. That's what I break down in my new AI Reset briefing. In it, I’ll show you exactly which companies I believe are best positioned as this shift unfolds – including one that recently signed a deal with the Trump administration to build what could be the most powerful AI computing system ever assembled. The AI cloud race is real. But the next race has already started. And it looks nothing like what you saw in this week’s earnings reports. Click here now to watch my full “AI Reset” briefing now. Sincerely, |
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