Big Tech companies face investor scrutiny next week as earnings reports are expected to reveal whether hundreds of billions of dollars in AI infrastructure spending are generating returns, according to I/O Fund Lead Tech Analyst Beth Kindig. Kindig stated that investors want proof AI monetization is catching up with years of heavy investment, with Big Tech having spent considerable capital expenditure for AI infrastructure. Investors will examine whether this spending is converting into revenue and profits, she added, noting the upcoming earnings reports could provide that answer. The stock market focus reflects broader questions about whether AI infrastructure investments are delivering sustainable financial performance.
Alphabet Leads Big Tech Stocks Performance This Year
One of the biggest surprises of this year's AI rally, according to Kindig, is that shares of companies driving the AI buildout have largely lagged those of companies supplying the underlying infrastructure. Alphabet Inc. (GOOG, GOOGL) has led the group with an 11% gain this year, followed by Amazon.com Inc. (AMZN) at 8%. Shares of Meta Platforms Inc. (META) are down 2%, while Microsoft Corp. (MSFT) shares have declined 18%.
"What is most shocking is how much Big Tech has lagged in dollar terms," Kindig said. Investors will be watching whether Big Tech can turn AI spending into faster cloud growth, stronger advertising revenue and broader AI software adoption.
Kindig Identifies Key Metrics Investors Will Monitor
Investors will look beyond revenue and earnings per share to cloud growth, AI software adoption and advertising trends as evidence that AI investments are paying off, according to Kindig. She said that at Alphabet, the focus is on whether Google Cloud can sustain its momentum while Search continues to monetize AI through advertising and growing inference demand.
Kindig added that Microsoft faces pressure to reignite Azure growth despite its rapidly expanding AI business, while investors will also be watching for updates on its Maia AI chips. At Meta and Amazon, investors will be watching whether AI investments continue driving advertising growth at Meta and cloud growth at AWS, Kindig said.
Earnings Reports Could Broaden AI Rally Beyond Chipmakers
Strong AI-driven growth across cloud, software and advertising could broaden the AI rally beyond chipmakers and infrastructure suppliers by showing that years of heavy investment are beginning to generate sustainable returns, Kindig said.
JPMorgan's Global Market Strategist, Hugh Gimber, said during an interview on Friday that the recent sell-off in chip stocks is not a reflection of weakening fundamentals, noting that semiconductor companies continue to deliver strong results. "For me, I think what's key here is not so much what the semis names are telling you themselves, but rather what we're going to get from the hyperscalers over the next couple of weeks, because all of that earnings growth is because of hyperscaler capex," he said.
Alphabet, Microsoft, Meta, Amazon, Apple, Intel, and other major technology companies are set to report quarterly earnings over the next two weeks.
Nasdaq Composite Down Nearly 1% at Time of Writing
The tech-heavy Nasdaq Composite index was down nearly 1% at the time of writing. The Invesco QQQ Trust (QQQ) is up 25% over the past 12 months, while the iShares U.S. Technology ETF (IYW) is up 35%.
FAQ
What did Beth Kindig say about Big Tech AI spending?
Beth Kindig, Lead Tech Analyst at I/O Fund, stated that Big Tech has spent considerable capital expenditure for AI infrastructure, and investors will want to see this spending turning into revenue and profits through the upcoming earnings reports.
How have Big Tech stocks performed this year compared to AI infrastructure suppliers?
Alphabet has led Big Tech with an 11% gain this year, followed by Amazon at 8%, while Meta Platforms shares are down 2% and Microsoft shares have declined 18%. According to Kindig, this represents a lag compared to companies supplying AI infrastructure.
Why did JPMorgan's strategist say the next two weeks matter for chip stocks?
Hugh Gimber from JPMorgan stated that what matters most is not the semiconductor companies' results themselves, but rather what investors will get from the hyperscalers over the next couple of weeks, because all of that earnings growth is because of hyperscaler capital expenditure.
