After a bumper year for spending on artificial intelligence infrastructure, scrutiny is shifting towards returns on investment from the companies at the heart of the AI boom.
Three of these – Meta, Microsoft and Tesla – are set to start the earnings season with fourth-quarter results on Wednesday, before investors focus on Apple on Thursday. Fellow Magnificent Seven companies Alphabet and Amazon will deliver results next week, with chip bellwether Nvidia due to report later next month.
Data from business and technology insights company Gartner anticipates that global spending on AI will pass $2.5 trillion this year, a 44 per cent year-on-year increase. Spending on AI infrastructure globally is expected to increase by $401 billion to more than $1.3 trillion this year.
This week's earnings will give investors the opportunity to hear from the Big Tech bosses, with some of the biggest questions focused on a road map for profitability.
“For the past two years, there's been an astonishing amount of capital expenditure in that sector,” said Peter Andersen, founder of Andersen Capital Management in Boston.
“Investors have been patient but I'm hoping that investors are going to grow less patient because it is taking this amount of time, and yet nobody has really given any tangible demonstration of how this relates to increased profits.”
Indeed, strong earnings might not be good enough for investors. Meta shares have fallen about 12 per cent since it reported strong earnings in October after investors seemingly baulked at the company increasing its capex forecast from $66 billion to between $70 billion and $72 billion.
It was not the only company to boost its estimates at the time. Amazon raised its AI spending forecast for 2026 from $118 billion to $125 billion, while Alphabet and Microsoft also previewed more spending.
Still, analysts are expecting more capex commitment from these companies. Wall Street analysts estimate hyperscalers' capex for 2026 to about $527 billion, according to a Goldman Sachs analysis published in December.
“We're not necessarily looking as to whether or not there's a pullback on capex. I think it's pretty strong that capital expenditures are ingrained and solid in terms of what's coming in,” said Arnim Holzer, global macro strategist at Easterly EAB Risk Solutions.
“Now you're going to start to see how revenue is going to be generated. How is that going to affect the return of capital?”
Tech companies have made a series of large announcements since they last reported.
Google and Anthropic announced a cloud partnership expected to deliver more than a gigawatt of AI computing capacity by 2026. Nvidia and Microsoft signed a multibillion-dollar deal with Anthropic. And Apple recently announced it chose Google's Gemini AI model to power Siri, which brought parent company Alphabet to cross the $4 trillion market cap threshold.
The conversation will also begin to shift towards how these Big Tech companies will make the move from announcing large data centre projects to building them.
“We think the scaffolding around that is going to have to start being put in place,” Mr Holzer said.
How investors digest these reports are likely to lead to large swings in a market that is already dealing with a bout of volatility.
Because Mag 7 companies comprise about a third of the S&P 500, how they perform could dictate how the broader index performs. That was on display as recently as Tuesday, when tech stocks helped to take the S&P 500 to a new record-high.
Microsoft closed more than 2 per cent higher at 4480.58 per share, while Meta and Alphabet both ended in the green. The broader S&P 500 ended the day at 6,978.60, a fresh closing record.
Still, the question remains if earnings this week will be enough to shake Wall Street out of its slump. US markets are facing a volatile environment amid President Donald Trump's tariff threats against Europe.
Mr Andersen said the tariff environment is an “unanalysable situation” given the Trump administration's shifting behaviour in placing extra charges on trading partners.
“It does create a lot of superficial instability, but that's also evidenced by the upwards spike in gold. It seems like investors are leaving US Treasuries and going into gold instead,” Mr Andersen said.
Markets are also set to be tested by the Federal Reserve's looming decision on interest rates, a weaker US dollar and the threat of a government shutdown.
