Google outshone its rivals in first-quarter earnings with faster cloud growth as the search giant and its Big Tech peers upped their AI infrastructure spending plans again to $725bn this year.
The big four “hyperscalers”, which include Amazon, Meta, Microsoft and Google parent Alphabet, are together expecting to spend 77 per cent more in capital expenditures than a record $410bn last year.
While investors have expressed scepticism about the huge sums in the past, they broadly welcomed the earnings reports as demand for AI and data centres drove large jumps in revenue and profits — led by a 63 per cent increase in Google Cloud revenue.
“The AI economy is healthy,” said Brent Thill, an analyst at Jefferies. Recent increases in revenue suggested the big players can shoulder the vast capex costs, he added. “The bear thesis is garbage.”
Shares in Alphabet rose 6 per cent in pre-market trading, on course to open at a record market value of nearly $4.5tn on Thursday. Amazon rose 1.8 per cent and Microsoft was down 1.8 per cent after gaining 18 per cent in the past month.
The mood was darker at Meta, where a drop in users, increase in capex and chief executive Mark Zuckerberg’s vague timeline to launch improved AI models sent the stock down 8 per cent in pre-market trading, even as revenues jumped by a third.
“Investors continue to be concerned about how Zuckerberg’s once capital-light money machine may be morphing into a capital-intensive incinerator,” said Dec Mullarkey, managing director of SLC Management. “They are not interested in growth at any cost.”
In contrast, investors cheered Google as it showed signs of strong AI-driven growth in earnings after facing criticism for allowing OpenAI and Anthropic to more quickly commercialise a technology that its DeepMind lab incubated.
Net income surged 81 per cent to $62.6bn and revenue rose 22 per cent to $110bn in the first quarter, beating estimates. The profit figure was flattered by an unrealised $36.9bn gain on equity securities. Google did not specify which investments were responsible, but it owns substantial stakes in SpaceX and Anthropic, which are privately worth $1.25tn and $380bn respectively and are exploring public offerings this year.
Search revenue rose 19 per cent to $60.4bn, while Cloud sales rose $7.7bn from a year ago to $20bn.
The results “will help investors gain confidence in the persistent return on investment question”, said UBS analyst Stephen Ju.
Google gained market share against its rivals in the highly competitive $500bn cloud computing market. But it remains significantly smaller than Amazon and Microsoft.
Amazon added $8.3bn in cloud sales for a total of $37.6bn for the quarter, while Microsoft’s cloud unit which houses Azure added $7.9bn in revenue, rising to $34.7bn.
Melissa Otto, head of Visible Alpha Research at S&P Global, said the results suggested “Google Cloud is starting to take a little market share . . . it could be nipping at their heels”.
Cloud boss Thomas Kurian, in an interview with the FT last week, attributed Google’s progress to a longstanding strategy to build its own custom AI chips, foundation models and products in-house. He argued this gave the company a cost and research advantage over its cloud and AI peers, which have struggled to build their own chips and frontier models.
Google on Wednesday claimed a $460bn backlog of contracts to rent data centre space, which helped the market stomach a $5bn rise in its capex guidance to as much as $190bn this year. Chief financial officer Anat Ashkenazi said spending would “significantly increase” again in 2027.
Amazon said its contract pipeline had reached $364bn at the end of March and would expand further due to a recent $100bn computing contract with Anthropic.
“There’s reasonable breadth in that. It’s not just one customer or two customers,” CEO Andy Jassy said on a call with investors, adding that a recent deal with OpenAI would unlock more revenue. “There is no one [AI] tool to rule the world. [Customers] want choice.”
At Microsoft, chief financial officer Amy Hood said more investment was needed in data centres to meet demand. A 40 per cent increase in cloud sales helped push Microsoft’s total revenue to a record $82.9bn and net income to $32bn.
Microsoft outlined $190bn of capex spending for the 2026 calendar year, ahead of the $152bn average analyst forecast.
Hood also warned that rising prices for memory chips and other components were responsible for $25bn of the record capex budget.
“Even with these additional investments, and continued efforts to bring GPU, CPU and storage capacity online faster, we expect to remain constrained at least through 2026,” she said. Hood added that cloud growth would accelerate in the second half of the year as more data centres come online.
Microsoft chief Satya Nadella said that ending its exclusive contract with OpenAI this week would be beneficial. “We now have a frontier model, royalty-free, with all the IP rights [and] access all the way till 2032, and we fully plan to exploit it,” Nadella said.
Meta also blamed “higher component costs, particularly memory pricing” as well as competition to invest in land, power and skilled workers to build data centres as it added $10bn to its spending plans. It now projects as much as $145bn in capex this year.
The news unnerved Wall Street, despite Meta’s revenue jumping 33 per cent to $56.3bn in the quarter as it used AI to boost advertising pricing and user engagement. The share price tumble in after-hours trading left Meta poised to shed $113bn in market value when markets open on Thursday.
Pressed on the timeline to release a promised series of text, image and video AI models to follow the Muse Spark model launched earlier this month, Zuckerberg said he cared more about “quality” than hitting a deadline.
Zuckerberg said: “There’s a lot of agents out there that people are building for different things, but there aren’t that many that I would want to give to my mother.”
Data visualisation by Louis Ashworth
