Meta, Microsoft, and Amazon's big exam week: AI is burning money faster, and the market's patience is running thin.

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The AI arms race among tech giants is facing a test of investor patience. Microsoft, Meta, and Amazon have all released quarterly earnings reports this week, and the focus has shifted from revenue growth to a more fundamental question: when will soaring capital expenditures finally deliver returns?

The backdrop of this test is a living example provided by Alphabet last week. The company reported its highest quarterly profit in history, reaching $112.1 billion, but its stock price immediately dropped over 7%—the reason being investors' caution over Alphabet's raised capital expenditure forecast for 2026, which is up by $15 billion.

Combined capital expenditures for Alphabet, Microsoft, Meta, and Amazon are expected to reach $700 billion this year, and Wall Street predicts the figure could break $1 trillion by 2027.

The fragility of market sentiment has set the stage for this week's earnings season of the three companies. According to Bloomberg citing UBS Global Wealth Management, "Visibility for capital expenditures beyond 2027 is limited, and as investor demand for spending discipline increases, risk appetite may be continuously suppressed." Meanwhile, Moody's, a Fitch Ratings subsidiary, warned last week that ongoing capital expenditure plans could "threaten credit quality," and the direct debt of six major tech firms totals about $460 billion.

Microsoft: Strong Azure momentum, Copilot monetization enters a new stage

Among the three companies, Microsoft faces perhaps the most definite expectation pressure. Analysts estimate Microsoft's capital expenditure this quarter will soar 74% year-over-year. Meanwhile, the market holds high expectations for Azure Cloud’s growth.

According to a Morgan Stanley research report, their analysts are confident Azure will achieve approximately 41% constant currency growth in the fourth quarter, beating management’s guidance of 39%-40% by about one percentage point. Morgan Stanley’s confidence comes from positive feedback from channel partners, continued improvement in GPU supply, and its own CIO survey results—in cloud migration scenarios, 72% of CIOs expect increased investments in Microsoft solutions in the coming year, with Microsoft leading all vendors on anticipated incremental IT budget capture.

Copilot’s commercialization progress is equally closely watched. In the third quarter, Microsoft M365 Copilot paid seats increased from 15 million to 20 million, and management indicated net additions of paid seats would continue to rise sequentially. Morgan Stanley noted that Copilot’s monetization path is evolving into three parallel growth lines: direct seat sales, user migration to higher-value E7 subscription plans, and consumption-based AI service pricing. Notably, Microsoft’s M365 business price hike for new customers has taken effect from July 1, 2026, and Morgan Stanley expects this price adjustment to contribute additional revenues of about $2 billion, $4 billion, and $6 billion in FY27, FY28, and FY29, respectively.

On the capital expenditure issue, Morgan Stanley believes street forecasts remain conservative and further upward adjustments are possible. Management previously disclosed their estimate of calendar year 2026 capital expenditure at about $190 billion, with about $25 billion attributed to rising component prices. The bank maintains an "overweight" rating for Microsoft, with a target price of $600, considering the current FY28 expected P/E ratio of ~16x “too cheap,” failing to reflect the company’s sustained high-growth potential.

Meta: Under user growth plateau pressure, capital expenditure may be sharply revised upward again

Meta’s situation is more complex. According to Bloomberg citing Bloomberg Industry Research (BI) analysis, Meta may “significantly” raise its capital expenditure guidance to cope with pressure from rising component costs—precisely the trigger for Alphabet’s stock drop last week.

Meanwhile, user growth faces new regulatory pressure. As regulatory agencies advance legislation to restrict teenagers’ use of social media, Meta’s user growth prospects will be increasingly tested. The "family daily active people" metric, which measures daily active users of its four core products, is expected to record its weakest growth rate since 2021.

Amazon: AWS growth may reach a new high since 2022

Compared to Microsoft and Meta, Amazon’s earnings expectations seem more optimistic this time. According to Bloomberg citing Truist analysis, Amazon's overall revenue growth may reach 17%, the highest in nearly five years; Amazon Web Services (AWS) growth may break 30%, setting a new high since 2022. Strong demand for AI-related services is considered the core driver of AWS growth.

However, Amazon also faces questions over capital expenditures. After Alphabet’s boosted spending forecast triggered a share-price drop, investors remain highly alert as to whether any of the three companies will further raise their capital expenditure outlook for 2027 and beyond.

Fitch warning: Balance sheets pressured, credit risks emerge

Moody's released a research report last week, setting a stern tone for this earnings season. The agency pointed out, Alphabet, Microsoft, Amazon, Meta, Oracle, and CoreWeave are shifting from asset-light models focused on software, IP, and cloud services to asset-heavy models requiring "unprecedented investment scale," and this trend may pressure their credit metrics.

Moody's Vice President Kevin McNeil said on an agency podcast, "These companies are all well-established giants with balance sheets that are nearly perfect in many cases, but they are launching nearly unprecedented capital investments. Increasing capital intensity may lead some companies' free cash flow to turn negative or at least shrink significantly." He further noted that debt financing “may raise leverage and add extra risk to the balance sheet.”

Among the six companies monitored, Oracle’s situation is the most precarious. Moody’s downgraded its credit outlook to negative, with its Baa2 rating only two notches above junk status. Last month, S&P Global similarly downgraded Oracle to just one notch above investment grade. By contrast, Alphabet, Amazon, Meta, and Microsoft currently still have sound balance sheets, and investment-grade ratings are safe in the short term.

Bull vs. bear debate: Will AI investment ultimately deliver, or is it overdrawing the future?

Market opinion is sharply divided over rapidly expanding capital expenditures. Bulls’ core logic: demand is real, growth is constrained by supply not demand. Taking Azure for example, Morgan Stanley notes that Microsoft CFO Amy Hood stated in last quarter’s earnings call that Azure’s guidance is essentially “allocated capacity guidance,” with growth constrained by progress in data center construction and GPU deployment timing, not by customer demand. As Microsoft plans to double total data center capacity over the next two years, this bottleneck could gradually ease.

Bears focus on the lack of visibility on returns. UBS Global Wealth Management points out, “Limited visibility for capital expenditures beyond 2027” is a key factor depressing investor risk appetite. Moody’s warnings are even more direct: the shift from asset-light to asset-heavy models is eroding these companies’ historically prized high free cash flow advantage.

For long-term investors, UBS still recommends holding positions: "For long-term, diversified investors, staying invested is the most effective way to handle current uncertainty. Given strong earnings growth and improving cyclical backgrounds, there are attractive investment opportunities across sectors and geographies." However, as seen with Alphabet, the market has already delivered its verdict: good financial performance isn’t enough—you also have to keep a tight rein on your purse.

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