OpenAI Spending Expands, Wall Street Focuses on Capital Spending of Big Tech Profits

OpenAI’s surprising investments announced in recent months have led to increased scrutiny of hyperscalers competing to build infrastructure for the accelerating artificial intelligence boom.

Investors are about to have a lot of new information to digest.

microsoft, alphabet, Meta and Amazon This week we will announce our quarterly results. Even though they operate very different businesses and compete in specific areas, Wall Street will focus on one particular item: capital spending.

“We’re just seeing this massive effort on the part of companies to actually invest in it,” said Melissa Otto, head of visible alpha research at S&P Global. “If they see this movement slowing down, it will be interesting to hear what they say about the trajectory of investment.”

For almost three years now, the market has been caught up in an AI frenzy, as generative AI chatbots like OpenAI’s ChatGPT and Google’s Gemini have demonstrated the power they have to potentially reshape vast areas of the economy.

The biggest challenge today is the lack of sufficient computing power and sufficient power.

AI companies reveal plans to build massive supercomputing data centers. Nvidia The AI ​​chip handles the expected load. OpenAI is a privately held company valued at $500 billion, owned by NVIDIA, oracle and broadcom.

Besides OpenAI, the largest builders include four internet hyperscalers scheduled to report earnings this week. In both cases, investors want an active plan and a clear strategy. However, unlike OpenAI, it cannot grow too large due to concerns that general investors will criticize the company’s stock.

morgan stanley Analysts said in a note last week that they expect total hyperscaler capital spending to rise 24% to nearly $550 billion next year.

Companies, especially Amazon, Microsoft and Google, also need to show revenue growth as they compete for AI business in the cloud sector.

“Trillions of dollars in spending are being allocated relative to the hundreds of billions of dollars of free cash flow that Mag7 will generate,” Impactive Capital co-founder Lauren Taylor Wolf said on CNBC’s “Squawk on the Street” last week, suggesting that companies have yet to see a significant return on investment.

Analysts will also look at how Microsoft’s Copilot AI capabilities are driving growth in other businesses. And whether Google’s AI investments are helping protect its core search and advertising business as more consumers turn to ChatGPT for information. Meta says its generative AI technology enhances its ability to target ads.

Another mega-cap company to report on this week is: apple. The iPhone maker has traditionally not operated a public cloud service or built any major large-scale language models that are available to the public, which puts it in a different category in the AI ​​space.

But Apple CEO Tim Cook said in June that the company would increase capital spending on AI, so AI is likely to be a bigger topic of conversation during Thursday’s earnings call.

Here’s what hyperscalers have said so far and what Wall Street is expecting.

Microsoft announced in July that it expected to spend $30 billion in capital spending during the quarter, representing an annual growth rate of more than 50%.

But Chief Financial Officer Amy Hood told investors at the time that capital spending would increase in fiscal 2026, which began in July, but at a slower pace than in fiscal 2025.

Analysts expect capital spending to rise 42% to $91.3 billion this fiscal year, following a 45% increase in the previous year, according to FactSet.

Mr. Hood said in the last earnings call that the company faces a lack of infrastructure compared to the demand for AI.

“I talked about that in January and said I thought we’d have a better supply and demand situation by June,” she said. “And now I’m hoping that by December I’ll be feeling better.”

Alphabet said in July that it expected capital spending to be $85 billion this year, exceeding its previous target of $75 billion.

CFO Anat Ashkenazi told investors at the time that the company plans to increase that number again in 2026, and that Alphabet is monitoring demand to ensure funds are not wasted.

“We have a very rigorous process to determine the demand behind it and determine the compute allocation relative to our technology infrastructure investments to ensure we are leveraging it appropriately,” Ashkenazy said.

He added that Google’s capital spending supports services for cloud customers and AI lab DeepMind, as well as the company’s products such as Gmail, Google Maps and YouTube.

Google will likely need to add production capacity after leading AI research lab Anthropic announced it would take reservations for up to 1 million of its TPU AI chips next year (a contract worth tens of billions of dollars).

Analysts expect capital spending to rise 57% to $82.4 billion in 2025, following a 63% increase last year, according to FactSet. It expects growth to slow to 12% next year, to $92.6 billion.

Over the summer, Meta raised the midpoint of its 2025 capital spending forecast by $1 billion to $69 billion.

Meta doesn’t have a cloud service to rent to customers, but CEO Mark Zuckerberg has touted the importance of the company’s AI infrastructure, saying it gives it an edge in serving ads and creating new kinds of feeds like its AI-generated video app Vibes.

“We’re making these investments because we believe superintelligence will improve every aspect of what we do,” Zuckerberg said in July.

Zuckerberg also has a relationship with Nvidia CEO Jensen Huang, who said at an investor event in October that Facebook uses Nvidia chips to create highly successful ad targeting algorithms.

Meta’s advertising business suffered in 2021 when Apple introduced new privacy systems that made it harder to target users on mobile devices. In finding a solution to this problem, Huang said Meta “solved the problem with AI powered by Nvidia GPUs.”

Analysts surveyed by FactSet expect Meta’s capital spending to grow 84% this year to $68.4 billion, accelerating from 37% growth in 2024. It is expected to grow by 42% to $97 billion in 2026.

Three months ago, Amazon CEO Andy Jassy sought to reassure investors that Amazon Web Services maintains a “substantial” leadership position compared to cloud rivals and said he was optimistic about the company’s AI products. But Microsoft Azure and Google’s cloud divisions are growing rapidly.

Amazon plans to spend more than $100 billion in capital spending this year. Although it did not raise its target in July, it did indicate that it had invested about $31 billion in capital spending per quarter in the last two quarters of this year.

“We continue to make capital investments in chips, data centers and power to pursue this extraordinary opportunity in generative AI,” CFO Brian Olsavsky told investors.

Olsavsky said much of Amazon’s spending is on its custom AI chip, called Trainium, and other technology infrastructure. But he also noted that Amazon’s spending supports the company’s fulfillment and transportation network, which delivers packages to users.

Analysts expect capital spending to grow 41% this year to $117 billion, slowing from 57% growth in 2024, according to FactSet. Next year, it is expected to increase by about 8% to $126.6 billion.

Apple spends a fraction of what its rivals do.

In fiscal 2024, the company spent only $9.4 billion on capital expenditures, about 2% of its total revenue. This was a decrease from the previous year.

Analysts expect sales to rise 28% to $12.1 billion in the 2025 fiscal year, which ends in September, and 19% to $14.4 billion in 2026.

Apple executives say the company’s “hybrid” strategy involves renting much of the computing power it needs from cloud providers, so that cost becomes an operating expense.

The company has not provided any official guidance on future capital spending, although Cook has suggested things may be changing.

“We’re significantly increasing our investment,” Cook told investors this summer.

“Our capital spending will continue to increase,” CFO Kevin Parekh said, adding, “It won’t be exponential growth, but it will be significant.”

Featured: Notable Capital’s Jeff Richards on demand-driven capital spending