Key Highlights

  • Alphabet Inc. raised its 2026 Capital Expenditure outlook to as high as $205 billion, with shares falling more than 7% immediately after the announcement.
  • Microsoft and Amazon shares each jumped more than 15% following their quarterly results, as investors viewed their capex plans more favorably.
  • Amazon said its 2026 capital expenditures could reach $220 billion due to rising memory costs.
  • Cloud providers CoreWeave and Nebius saw shares climb 19% and 34% respectively following their Earnings results, with Nebius's total contract value nearly quadrupling.

Capex Intentions Remain Central to Investor Sentiment

Big Tech capital spending on data centers remains a dominant theme as the second-quarter earnings season winds down, with investor reaction varying sharply based on how companies frame their spending plans. Alphabet Inc. (NASDAQ:GOOGL) raised its 2026 capital expenditure outlook to as high as $205 billion last month, and said it planned to further increase spending in 2027, sending its shares down more than 7% immediately following the update, though the stock remains up roughly 10% for the year. Concerns about returns on AI Investment eased somewhat after Microsoft Corp. (NASDAQ:MSFT) and Amazon.com Inc. (NASDAQ:AMZN) reported results, with Microsoft Corp. holding its 2026 capex steady while guiding for growth in fiscal 2027, and Amazon.com Inc. projecting capital expenditures could reach $220 billion due to rising memory costs. Both stocks jumped more than 15% following their respective reports.

Analysts Point to Revenue Growth as Key Justification

Analysts said the market's tolerance for continued capex growth depends largely on whether revenue growth outpaces spending while margins continue to improve. Microsoft reported that Azure and other cloud services revenue increased 43% in its fourth quarter, with guidance calling for 45% growth in the following quarter, a pace analysts said justifies the company's spending trajectory. By contrast, some analysts said Alphabet's results, while strong, did not sufficiently justify its spending increase, noting the company reported Negative cash flow alongside its higher capex outlook.

Financing Structure and Broader Economic Diffusion in Focus

Market participants are increasingly focused on how the capex buildout is being financed, given that both Amazon and Alphabet reported negative cash flow in the recent quarter. Analysts said spending funded primarily through cash flow and cash reserves poses less risk than an increasing reliance on debt financing. Other strategists noted improving Demand and order coverage relative to capex among hyperscalers, which could support monetization outpacing spending growth. Investors are also watching for evidence that AI benefits are extending beyond the technology sector itself, into areas such as pharmaceutical research and drug discovery cycles, as a signal that growth is not solely dependent on continued capex increases. Cloud providers CoreWeave and Nebius saw shares climb 19% and 34% respectively this week following their earnings, with Nebius's total contract value nearly quadrupling in its latest quarter. Nvidia's earnings results, due after the bell on August 26, are seen as the next major test for the broader AI investment theme.