US Tech Stocks Experience Volatility Over AI Investment
The share prices of the largest US technology companies fluctuated as investors evaluated their substantial expenditures on artificial intelligence (AI).
On Wednesday, Meta (Facebook's parent company), Alphabet (Google's parent company), Microsoft, and Amazon simultaneously released their financial results for the first quarter of the year.
Collectively, these firms intend to invest over half a trillion dollars in AI throughout the year, with Meta and Amazon implementing significant job reductions to mitigate these costs.
Following the earnings announcements, Meta's shares declined by more than 5% in after-hours trading, while Microsoft and Amazon shares fell by 2% and 1.6%, respectively. Conversely, Alphabet's stock surged nearly 6%.
Investor concerns have grown regarding whether the extensive AI investments will yield adequate returns.
Mixed Financial Results Highlight AI Spending Impact
The quarterly results presented a varied outlook for these companies.
Mark Zuckerberg, Meta's co-founder and CEO, stated in prepared remarks that the company "had a milestone quarter" marked by increased app user engagement and the launch of a new AI model. However, these achievements were overshadowed by rising costs.
"We had a milestone quarter," said Zuckerberg, highlighting user growth and AI model release.
Meta's stock declined after the company announced plans to increase its AI-related expenditures beyond previous estimates.
The company revealed that its planned capital expenditure, which reflects spending on projects yet to translate into business growth, would rise to as much as $145 billion (£108 billion), up from an earlier cap of $135 billion.
Alphabet's strong performance and clear evidence of business gains from AI investments contributed to its stock price increase in after-hours trading.
The company reported a 30% rise in profits and noted that its Google Cloud division expanded by 63%, attributing this growth specifically to increased AI adoption by cloud service customers.
"Our AI investments and full stack approach are lighting up every part of the business," said Sundar Pichai, Google's CEO.
Microsoft's shares dropped nearly 2% after its quarterly report.
The company exceeded revenue expectations with a 16% increase to $83 billion and saw profits rise 23% to $38 billion. However, AI-related expenditures have impacted its free cash flow, a key metric indicating available cash reserves.
Microsoft's free cash flow for the quarter was $15.8 billion, down nearly $6 billion compared to the previous year.
Satya Nadella, Microsoft's CEO, stated, "Our AI business is growing. The annual run rate of our AI business hit $37 billion."
This run rate represents a projection of future sales based on multiples of current sales, though the company did not disclose the base sales figure used for this calculation.
Microsoft's stock has declined nearly 11% year-to-date amid ongoing investor questions about its AI spending and its partnership with OpenAI, in which it has invested over $10 billion.
Amazon's shares decreased following its forecast of lower-than-expected profits for the next quarter, despite results aligning with analyst predictions.
The company reported a 15% year-over-year profit increase and a 28% growth in its cloud business, marking the largest increase in over four years.
"We're in the middle of some of the biggest inflections of our lifetime, we're well positioned to lead, and I'm very optimistic about what's ahead for our customers and Amazon," said Andy Jassy, Amazon's CEO.
Jassy also highlighted Amazon's growing AI chip manufacturing business, noting an annual run rate of $20 billion for its chips.
Similar to Microsoft, Amazon did not specify the base sales figure underlying this run rate.
While Jassy did not provide specific details on overall AI spending, the company had earlier announced plans to invest $200 billion in AI in the coming months, up from $125 billion spent in 2025.
