AI ramp-up stalls as Google and Microsoft put capex forecasts on hold

Hyperscalers’ earnings over the past few quarters have been marked by ever-increasing capital spending forecasts as tech giants race to build out artificial intelligence infrastructure to meet what they call insatiable demand.

At least for now, microsoft and alphabet tells a slightly different story.

Both companies shared capital spending figures in their earnings reports Wednesday that were lower than analysts expected. Microsoft lowered its capital spending outlook for this year to $170 billion from $175 billion, while Alphabet kept its guidance at $195 billion to $205 billion.

While this number suggests there is no slowdown in sight, it does point to another potential concern in building AI. Neocloud share coreweave, Nevius and Airen All were deleted after reporting. oracleone of the largest spenders on AI infrastructure.

Microsoft Chief Financial Officer Amy Hood said on the software company’s earnings call that delays with third-party providers of graphics processing equipment will crush some of its available capacity through the first half of 2027. Although she did not name names, Microsoft relies on CoreWeave, IREN, and Nebius, among others.

Anat Ashkenazi, Alphabet’s finance chief, told analysts that external computing power “came online at the very end of the third quarter.” Alphabet’s stock price fell about 10% in after-hours trading as the company missed out on earnings and sales and had more than $9 billion in negative free cash flow.

Many Alphabet shareholders remain loyal.

“We are pleased with what we have seen and heard and with management’s approach to AI spending,” Chris Ballard, managing director at Check Capital Management, said in an email to CNBC.

Investors will get final word on the hyperscaler’s capital spending this quarter. Amazon Results will be announced after the close of trading on Thursday. in meta In its earnings call last week, the company said it expected full-year capital spending to be between $135 billion and $145 billion, raising the low end of the range from $130 billion. Like Alphabet, Meta stock also fell as the company reported negative free cash flow.

Microsoft has experienced delays from emerging neocloud partners before, but they’ve become more significant now that Anthropic is about to go public. Anthropic relies on infrastructure from Amazon, Google, and Microsoft for many of its computing needs; space xLambda and Nscale filed to go public in September, but haven’t updated their prospectuses in weeks.

This year, Anthropic’s assistant Claude was unavailable at times due to increased demand. rival OpenAIThe company, which says an initial public offering is likely in 2027, also constantly needs more production capacity.

One of the big challenges for the market is that NeoCloud does not have an investment-grade credit rating, even though it requires billions of dollars in outside capital to facilitate its construction. Lenders are exiting the market as interest rates rise and concerns about debt burdens grow.

Last week, Gartner analysts shared with CNBC the company’s prediction that by 2030, 80% of neo-cloud companies will be absorbed or go out of business altogether. NvidiaAustralian-based neocloud firm Firmus scrapped plans to go public earlier this month, despite boasting large usage agreements from Meta and OpenAI.

None of this suggests that AI ramp-up is over or nearing a plateau.

Microsoft’s Mr. Hood said Wednesday that he expects capital spending to accelerate in the first half of 2027 due to rising component costs and delivery delays. For the group as a whole, hyperscaler capex is expected to exceed $1 trillion next year and continue to rise from there, according to some estimates.

Despite a lack of capital spending in the third quarter, investors welcomed a report released by Microsoft on Wednesday showing that the company reported a 48% increase in revenue from its Azure cloud business, beating revenue and revenue expectations.

“We expect this quarter to further validate Microsoft’s AI-driven growth opportunities,” Kantar analysts led by Thomas Blakey said in a note to clients on Wednesday. They recommended Microsoft stock as a buy and raised their one-year price target from $608 to $630.

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