Tech giants are betting big on the future of artificial intelligence (AI), with massive data centers filled with humming servers at the core of this vision. However, the staggering costs required to drive AI development are becoming increasingly evident, putting Wall Street investors on edge.
Three industry leaders—Alphabet Inc., Meta Platforms Inc., and Microsoft Corp.—collectively spent approximately $78 billion in capital expenditures last quarter, marking an 89% year-over-year increase. A significant portion of these funds was allocated to data center construction and equipping them with GPUs and other hardware. Despite investors bracing for heavy spending, all three companies raised their future expenditure forecasts, sparking market unease.
Following their earnings disclosures, Meta's shares fell 8.3% in premarket trading, while Microsoft dropped 2.7%. Meta also warned that 2026 spending would be "significantly higher" than 2025 levels. Although Alphabet investors largely accepted its increased capital expenditures, pushing its stock up over 7% premarket, the reports reignited concerns about a potential AI bubble.
During an earnings call, Bernstein analyst Mark Moerdler questioned Microsoft executives: "Are you confident AI investments will pay off? Or, frankly, are we in a bubble?" Microsoft CFO Amy Hood reiterated that despite investing tens of billions in recent quarters, the company still cannot meet current AI and service demand. "I thought we'd catch up, but we haven’t. Demand continues to grow across multiple sectors," she said.
Microsoft, which kickstarted the AI boom with its $13 billion OpenAI investment, is now aggressively expanding data centers to maintain its leadership. Yet, its record $34.9 billion Q3 capital expenditure surprised investors. The Azure cloud division, Microsoft's primary revenue driver for recouping AI costs, maintained steady growth but failed to accelerate—a key metric to justify heavy spending.
Alphabet's Google offered a more optimistic outlook, reporting 650 million monthly active users for its Gemini AI assistant—a 44% jump in three months. CFO Anat Ashkenazi noted that Google Cloud secured more billion-dollar deals in the first nine months of 2025 than in the previous two years combined. Google Cloud revenue rose 34% YoY to $15.2 billion, beating estimates, but its spending is climbing too, with 2025 capex now projected at up to $93 billion.
Amazon.com Inc.'s upcoming earnings will provide further clarity on the cloud sector, while Apple Inc. also reports later today. Among Wednesday's earnings, Meta's update rattled markets the most. Beyond disclosing a $16 billion one-time tax charge, it warned of "meaningfully faster" 2026 capex growth. Unlike Microsoft and Google, Meta isn't a major cloud provider, making its heavy spending riskier. If AI demand falters, Microsoft and Google can repurpose excess capacity for other clients—evidenced by their soaring backlogs ($392 billion and $155 billion, respectively). Meta, however, faces murkier ROI prospects as it integrates AI into Instagram and Facebook to refine ad targeting—its core revenue source.
CEO Mark Zuckerberg outlined contingency plans for potential overcapacity, such as reallocating resources internally or selling excess compute power externally. "We’re not doing this yet, but it’s an option," he said. Meanwhile, Meta’s Reality Labs unit posted a $4.4 billion Q3 loss on just $470 million in revenue, yet Zuckerberg called smart glasses a "massive opportunity," arguing the bigger AI risk is underinvesting. "We’re still early, but seeing core business returns gives us confidence to scale up," he stated.