Alphabet AI spending plan puts Big Tech capex in focus

Alphabet AI spending moved to the centre of Big Tech earnings after the Google parent raised its 2026 capital expenditure forecast by $15 billion at the midpoint to a range of $190 billion to $205 billion, CNBC reported. The company also said spending would rise again in fiscal 2027, while second-quarter free cash flow turned negative by $5.8 billion, the first negative quarterly reading in Alphabet’s history, according to CNBC.

The figures changed the market focus from demand for artificial intelligence services to the cost of supplying them. Alphabet’s results included an 82% year-on-year rise in Google Cloud revenue, but CNBC said the higher capital spending plan overshadowed the stronger operating performance. Alphabet shares fell 7% on Thursday after earnings and were down almost 8% over five days, according to CNBC.

Jeff Marks, portfolio director for CNBC’s Investing Club, said Friday that capital expenditure trends would be the main issue for investors. He said companies are spending because they see customer demand and want to stop clients from moving elsewhere, but added that the effect on free cash flow could not be ignored.

Why is Alphabet AI spending under scrutiny?

Capital expenditure covers long-lived assets such as data centres, chips, networking equipment and other computing infrastructure. In AI, these outlays can rise before revenue fully materialises, which can reduce free cash flow even when cloud demand is growing.

That tension is now set to frame results from three other large cloud and AI companies. Meta Platforms and Microsoft are scheduled to report Wednesday evening, while Amazon is due after Thursday’s close, CNBC said. Shares of Meta and Amazon fell nearly 7% and 6%, respectively, during the week, while Microsoft was down more than 2% week to date, according to CNBC.

Meta may face the closest examination. The owner of Facebook and Instagram has been increasing investment in computing capacity for its AI plans and has been preparing to launch a public cloud business to sell unused computing capacity to outside customers, CNBC reported. Last quarter, Meta lifted its 2026 capital spending guidance to $125 billion to $145 billion, an increase of $10 billion at the midpoint, citing higher costs for memory, chips and data centre components. Its shares dropped 9% after that report, CNBC said.

Amazon’s earnings will be assessed against demand at Amazon Web Services, the world’s largest cloud infrastructure provider. CNBC said Alphabet’s cloud growth and backlog suggested enterprise demand for AI computing remained strong, a potential justification for continued spending by AWS. Amazon left its 2026 capital expenditure forecast near $200 billion last quarter and had been projected in May to generate negative free cash flow this year, according to CNBC.

Microsoft faces a related test through Azure. CNBC reported that Microsoft outlined about $190 billion in expected calendar-2026 capital spending in April, while its free cash flow has come under pressure in recent quarters. The company also has broad exposure to enterprise software through Office and other products, a segment that has been pressured by concerns that AI could replace some software tools. CNBC cited Starbucks’ plan last month to drop software tools from Microsoft and IBM and use AI to build them internally.

Jim Cramer’s Charitable Trust holds Alphabet, Amazon, Meta and Microsoft, according to CNBC’s Investing Club disclosure. CNBC also reported that Cramer was uncomfortable with Alphabet’s announced capex level, despite the company’s strong cloud growth.

This story draws on original reporting from CNBC.