The artificial intelligence arms race is escalating at an unprecedented pace, with Wall Street unusually applauding massive capital expenditures. Early signs of winners and losers are beginning to emerge.

Tech giants led by Meta Platforms, Inc., Microsoft, Alphabet, and Amazon.com are expected to collectively spend nearly $400 billion this year on AI infrastructure development—a figure that exceeds the European Union's total defense spending last year. These investments are projected to contribute up to 0.5 percentage points to U.S. GDP growth this year and next. Morgan Stanley predicts trillions of dollars will flow into AI infrastructure over the coming years.

Meta Platforms, Inc., Microsoft, and Alphabet are emerging as frontrunners in this AI battle through exceptional financial performance. Meta Platforms, Inc.'s AI investments have directly translated into advertising revenue growth, driving its stock price higher. Microsoft has achieved cloud business growth through AI, pushing its market capitalization above the $4 trillion mark. Alphabet's massive AI investments are also showing initial results.

However, some giants face significant challenges. Amazon.com's AWS cloud business growth lags behind competitors, raising market questions about its AI strategy. Apple is increasingly viewed by Wall Street as a "laggard," with its conservative AI investment and internal struggles causing investor concerns about future innovation capabilities. Some analysts suggest acquisition may be its only path forward.

The competitive landscape of this AI spending war is beginning to crystallize. AI strategic investment has become key to determining tech giants' future fate. Markets are reassessing these companies' value, using capital votes to reward those successfully converting AI investments into actual growth while showing no mercy to giants failing to keep pace.

**AI Arms Race: Unprecedented Spending Scale**

In capital markets, high capital expenditures are typically viewed as profit erosion, causing investor concern. This time, Wall Street has broken convention.

Morgan Stanley predicts tech giants will spend a total of $2.9 trillion on chips, servers, and data center infrastructure from 2025 to 2028. This investment intensity is even policy-supported, with recently passed legislation providing tax relief for companies making upfront investments, further releasing their cash flows.

However, infrastructure demand is so massive that corporate cash flows can no longer cover costs. Morgan Stanley estimates a $1.5 trillion financing gap in this AI infrastructure race. Despite this, investors seem unconcerned—Microsoft and Meta Platforms, Inc. reached historic highs after announcing massive spending plans.

**Winners: AI-Driven Positive Cycles**

In this AI spending battle, some giants have achieved "positive cycles," where AI investments not only avoid profit erosion but generate stronger growth, supporting further expenditure expansion.

**Meta Platforms, Inc.:**

Following Q2 earnings release, Meta Platforms, Inc. stock surged 11.3%, adding approximately $200 billion in market value to reach around $1.75 trillion. The company raised its annual capital expenditure forecast lower bound by $2 billion to a range of $66-72 billion.

Company executives indicated current investment levels are just the beginning. Meta Platforms, Inc. hinted at potentially reaching $100 billion in spending by 2026. CEO Mark Zuckerberg outlined an ambitious plan to build what he calls AI "personal super intelligence" to enhance core business competitiveness. Zuckerberg stated that building such AI capabilities justifies paying high salaries to AI engineers.

Analysis suggests Meta Platforms, Inc.'s core advantage lies in AI directly creating value for its advertising business. The company reported that AI recommendation models significantly improved ad conversion rates and increased user time spent on Facebook and Instagram. This positive cycle of "AI → revenue growth → profit improvement → more AI spending" has earned Wall Street's complete endorsement of its $72 billion annual capital expenditure plan.

**Microsoft:**

Microsoft's stock rose 4% after Q2 earnings, pushing market cap above $4 trillion, becoming the second company after chip giant NVIDIA to reach this milestone. Its earnings demonstrated remarkable "top-down" strength, maintaining solid gross and operating profit margins despite significantly increased capital expenditures.

Microsoft also announced record quarterly capital spending of $30 billion, with Azure cloud computing business sales and forecasts exceeding expectations, demonstrating returns from large-scale AI investments. Microsoft first disclosed Azure annual sales exceeding $75 billion, with Copilot AI tool users surpassing 100 million.

This stems from chain effects of its AI computing leadership, where AI demand drove strong growth in Azure cloud services and other high-profit products.

**Alphabet:**

Alphabet's strong Q2 performance showed the company achieved above-expected growth while significantly increasing investments. The company announced substantially raising capital expenditure expectations from $75 billion to $85 billion, equivalent to 22% of expected annual revenue. This investment level represents the highest annual percentage since 2006.

Alphabet's massive investments are showing initial results. AI Overviews—algorithm-generated summaries appearing at the top of search results when users ask questions—haven't weakened search advertising value as markets feared. Instead, the company reported 10% increased query volume in searches featuring AI Overviews, with no negative revenue impact.

Debra Aho Williamson, founder and chief analyst at Sonata Insights, stated: "As companies like Alphabet and Meta Platforms, Inc. race to deliver on AI promises, capital expenditures are staggeringly high and will remain so for the foreseeable future. But if core businesses stay strong, this will buy them more investor time and provide confidence that billions spent on infrastructure, talent, and other technology-related expenses are worthwhile."

**Losers: Apple's AI Dilemma**

In this intense spending battle, Apple stands as a "notable exception," widely considered behind by Wall Street.

In Q2 earnings calls, CEO Cook emphasized AI as "one of the most profound technologies of our time," committing to continue "significantly increasing investment" in the field. CFO Kevan Parekh stated capital expenditure growth is primarily driven by AI-related investments, with the company adopting a hybrid strategy investing in both first-party data centers and third-party infrastructure. Investors should expect increased capital expenditures, but "not exponential growth."

Markets believe Apple's AI investment scale falls far short of other giants, placing it at technological and strategic disadvantages. Internal reports suggest researchers face low morale due to overly strict data privacy protections preventing access to data needed for AI model training. Its slow software update cycles also lag far behind competitors. Reports indicate Meta Platforms, Inc. CEO Mark Zuckerberg is exploiting this internal dissatisfaction, using hundreds of millions in compensation packages to poach disgruntled AI engineers from Apple.

Wedbush analysts suggest Apple cannot achieve AI innovation alone, with a $40 billion acquisition of Perplexity being the only path forward. Previous reports indicated Apple negotiated acquiring Perplexity when valued at $14 billion. A $40 billion acquisition would far exceed Apple's largest acquisition—the $3 billion Beats purchase in 2014—and become one of tech's most expensive AI-related acquisitions.

**Under Observation: Amazon's Challenge**

Amazon.com finds itself in an awkward position. Q2 earnings show it's a significant participant in the AI arms race with annual capital expenditures around $118 billion, but its core AI business—AWS cloud services—faces severe challenges.

Analysis suggests that while AWS remains a massive business with over $123 billion in annualized revenue, its 18% growth rate is far behind Microsoft Azure's 34% and Google Cloud's 32%. This raises strong investor skepticism about Amazon.com falling behind in generative AI.

Following earnings release, Amazon.com stock dropped 7%. CEO Andy Jassy spent eight minutes defending AWS during the earnings call. He highlighted the proprietary AI chip Trainium2, claiming "30% to 40% better price-performance than other GPU suppliers," and presented an AI tools "complete package" including programming assistant Kiro and Alexa+robotics, attempting to prove AWS has the long-term endurance and innovation capabilities to win the AI marathon.

However, markets await Amazon.com proving itself with more impressive growth data.