Alphabet Changed Wall Street’s Favorite AI Metric: Microsoft and Meta Are Up Next

Investors used to judge AI stocks by three factors: revenue, earnings, and whether those figures beat Wall Street’s expectations.

For the largest tech companies, that framework is rapidly becoming obsolete.

Wall Street has become obsessed with a different line on the financial statements: capital expenditures, or capex.

It is no longer enough for Alphabet Inc. (NASDAQ:GOOGL), Microsoft Corp. (NASDAQ:MSFT), Amazon.com Inc. (NASDAQ:AMZN) or Meta Platforms Inc. (NASDAQ:META) to post another quarter of record sales or earnings.

Investors now want to know something far more important:

How many billions are they willing to spend to win the AI race?

The Hidden Price of AI Spending

Google’s parent reported $44 billion in capital expenditures during the latest quarter, bringing spending over the past 12 months to $132 billion—roughly double the level of a year earlier.

Management also guided for about $200 billion in Capex over the next 12 months, signaling that the spending spree is far from over.

The immediate consequence is the disappearance of the financial metric equity investors have historically prized most: free cash flow.

As AI infrastructure spending ballooned, Alphabet’s quarterly free cash flow turned negative for the first time in the company’s history, underscoring the trade-off at the heart of the AI race.

Hyperscaler are increasingly willing to sacrifice today’s cash generation in exchange for tomorrow’s computing capacity.

But investors do not have that luxury to wait.

Now the spotlight shifts to Microsoft and Meta, whose earnings this week could determine whether Wall Street believes the AI infrastructure boom is accelerating even further.

The Hyperscaler’s AI CAPEX Tracker

The scale of spending is unprecedented across the group.

Over the past twelve months, the five largest hyperscalers—Alphabet, Amazon, Meta, Microsoft, Oracle Corp. (NYSE:ORCL)and Space Exploration Technologies Corp. (NASDAQ:SPCX)—have invested roughly $539 billion in capital expenditures.

Consensus estimates suggest that figure will surge to nearly $800 billion over the current fiscal year, exceed $1 trillion the next, and approach $1.33 trillion annually within five years.

Among this week’s earnings reports, Microsoft and Meta stand out.

Microsoft spent approximately $97.2 billion over the last twelve months.

Analysts now expect CapEx to climb to $118.9 billion over the next fiscal year, a 22% year-over-year increase, before accelerating to $178.9 billion the following year, another 50% jump.

Meta’s spending trajectory is even steeper.

After investing about $75.8 billion over the past year, consensus expects capex to reach $135.2 billion over the next twelve months—an eye-catching 79% increase—before rising another 29% to $174.1 billion the following year.

The numbers suggest that investors may spend less time analyzing advertising growth or Azure cloud revenue than examining one figure buried in the cash flow statement.

The AI spending race is only beginning.

Consensus estimates suggest annual capital expenditures by the world’s largest hyperscalers could surpass $1 trillion as early as next year and approach $1.3 trillion within five years.

AI Hyperscaler Spending: Current Levels And Five-Year Outlook

Image: Shutterstock