Earnings reports from tech giants are approaching, and the return on AI investments remains unknown.

```

U.S. tech giants are releasing their earnings this week, and the market faces a key question: is the AI boom brewing the next bubble?

According to media reports on Monday, although Microsoft, Alphabet, Amazon, and Meta are all expected to announce strong Q3 revenue growth, these companies and other major cloud service providers are forecast to invest $400 billion in AI infrastructure this year, with returns on investment still unknown.

A widely cited MIT study shows that, among more than 300 AI projects analyzed, only about 5% delivered measurable returns. Most AI projects remain at the pilot stage due to integration issues in workflows and difficulty scaling models. This casts a shadow over the AI boom that has added about $6 trillion in market value to tech giants since ChatGPT launched in November 2022.

Business leaders including OpenAI CEO Sam Altman, Amazon founder Jeff Bezos, and Goldman Sachs CEO David Solomon have warned in recent months that tech stock frenzy has surpassed fundamentals. Investors are starting to revert to strategies from the dot-com bubble era to avoid AI bubble risks.

Circular trading sparks systemic risk worries

A series of circular trades reminiscent of the 1990s internet bubble has heightened market unease. According to a previous Wallstreetcn article, Nvidia may invest $100 billion in OpenAI, one of its largest customers. OpenAI has signed $1 trillion worth of AI computing power deals but has revealed little about how it will finance them, including a commitment to buy $300 billion in computing capacity from Oracle.

Debt financing is playing an increasingly important role in Big Tech's AI infrastructure investments, marking a departure from past investment cycles. Meta recently signed a $27 billion financing agreement with private credit firm Blue Owl Capital to build its largest data center.

Ahmed Banafa, engineering professor at San Jose State University, said:

When the same group of companies both finance and depend on each other, decisions may no longer be based on real needs or performance, but on boosting growth expectations. These deals themselves aren't necessarily problematic, but when they become the norm, systemic risk increases.

Cloud business posting strong growth but profits under pressure

Despite bubble concerns, Amazon, Microsoft, and Google’s cloud computing units are all expected to report strong Q3 growth, although capacity is limiting their ability to meet AI demand. Visible Alpha data show Microsoft Azure revenue may grow 38.4%, higher than Google Cloud’s 30.1% and Amazon Web Services’ 18% forecast growth.

AWS remains the biggest player, but it lags behind Microsoft, which benefits from OpenAI collaboration, and Google, whose models are gaining traction among startups. Recent AWS service outages affecting several popular apps have sparked new scrutiny.

According to LSEG data, Microsoft’s revenue is expected to grow 14.9% in Q3, Alphabet 13.2%, Amazon and Meta 11.9% and 21.7% respectively. However, as costs surge, profit growth at these companies is expected to slow, with all except Microsoft forecast to post their weakest profit gains in ten quarters.

Some investors bet on rising AI adoption

Despite skepticism, some investors believe real value is emerging beneath the bubble, pointing to double-digit top-line growth and strong cash flow supporting the tech giants’ balance sheets.

Eric Schiffer, CEO of Los Angeles investment firm Patriarch Organization, which holds shares of all “Magnificent Seven” companies, said:

Current adoption rates may be low, but that’s not a forward-looking indicator. With more investment and model innovation, adoption will rise. I don’t think we’re in bubble territory yet.

OpenAI cofounder and former Tesla AI chief Andrej Karpathy remarked earlier this month, Overall, models remain immature. I think the industry is leaping too far ahead, trying to pretend this is amazing when it really isn’t.

Microsoft, Alphabet, and Meta will release their results on Wednesday, and Amazon on Thursday.

Risk Warning and DisclaimerMarkets have risks, invest with caution. This article does not constitute personal investment advice and has not accounted for the specific investment objectives, financial status, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are appropriate to their specific situation. Any investments based on this article are at your own risk. ```