Earnings season for a handful of megacap tech firms has morphed into capex season with the AI arms race showing no signs of slowing.

Focus will be on how much the behemoths Microsoft and Meta Platforms plan to dish out to keep up with competitors like Google and Amazon.com as they build out infrastructure and software to power artificial intelligence applications.

The answer — estimated at around US$70-billion in each company’s current fiscal year — may matter more to investors than actual profits and will go a long way to determining whether blistering rallies in the shares will persist. Both report after the close on Wednesday.

For nearly two years now, investors have continued to shower Big Tech with cash as the companies churned out lavish profits and then reinvested hundreds of billions of dollars into AI. Now, with Microsoft and Meta having notched rallies north of 40% from April lows, analysts worry massive outlays without corresponding AI profits could dent investor enthusiasm.

“If a company is saying, maybe we’ll see an AI benefit in five years, we’re no longer at the point where that will get a pass,” Gabriela Santos, chief strategist for the Americas at JPMorgan Asset Management, said in an interview. “Valuations are mattering more and more, and valuation especially matters if a company can’t grow sales as fast as expected, or as quickly as capex.”

Microsoft is expected to report about $18-billion in capital spending in the quarter ended 30 June, an increase of nearly 30% from a year ago. Sales at the software giant are forecast to rise 14%. Meta, meanwhile, is expected to show $16.4-billion in spending, double from the year-ago period, while revenue will rise 15%, according to analyst estimates compiled by Bloomberg.

Hopeful marker

Last week provided a hopeful marker for Big Tech bulls. Shares in Google parent Alphabet rose as the company boosted its capex forecast 13% to $85-billion after delivering better-than-expected earnings. A gain in the week erased what had been a loss in 2025.

The bar is likely higher for Meta and Microsoft when it comes to spending, not least because their shares have rallied about 20% this year versus Alphabet’s 3.4% gain. They also have different approaches to AI than Alphabet’s search-driven focus, with Microsoft teaming with OpenAI and Meta trying to develop “super intelligence” with an army of engineers, lured with massive pay packages.

Read: Apple loses fourth top AI researcher in a month to Meta

Last quarter, AI spending proved somewhat beneficial. Meta’s strength was credited to AI improving ad targeting, and Microsoft saw a similar tailwind with its cloud business.

“Microsoft is investing aggressively into AI, which looks like the right strategy if you have a long-term view on the stock,” Daniel Flax, a senior research analyst at Neuberger Berman, said.

Santos struck a more cautious tone specifically on AI outlays.

“We’re really honing in on margins this quarter,” she said. “It is still all about ROI, and what companies can grow their sales faster than what they’re invested into AI capex.”

With capex swelling at both companies, neither can afford to falter in the businesses that have generated billions in cash flow in recent years — a misstep Flax thinks both can avoid. “Microsoft is executing extremely well on its cloud opportunity,” he said.

Azure, the OpenAI investment, and AI assistant “Copilot” should ease worries about spending, said Krishna Chintalapalli, portfolio manager and tech sector head at Parnassus Investments. “Those are all huge and growing businesses, and Microsoft seems like it has less risk in its non-AI business, where there is steady recurring revenue.”

Meta’s AI bets also make sense to investors. The company has “multiple ways to earn a return on AI spending”, according to Michael McKinnon, who manages more than $40-billion as a portfolio manager at Artisan Partners and holds Meta shares.

He cited the ability to improve efficiency and increase both user engagement and the return on ad spend for its customers as ways for AI to drive growth, in addition to the ability to create new business categories, such as with its smart glasses.

This is a “very different kind of spending than what we saw a couple years ago, when it was spending $20-billion on Reality Labs”, which was a “low-probability bet that didn’t justify the level of investment Meta was throwing at it”.

Cautious

Still, with trillion-dollar valuations and p:e ratios near or above long-term averages, investors will likely remain cautious as the results roll in. Option-derived implied moves for the shares following the reports are relatively muted, with Microsoft at 3.9% and Meta at 5.8%.

Read: Meta to build Manhattan-scale, multi-gigawatt data centres

“Historically, high or rising capex is a negative factor, but the more profitable the company is, the more it turns into a positive factor,” said Tony DeSpirito, global chief investment officer of BlackRock Fundamental Equities. “That’s why these big tech companies are getting treated differently than another company might.” — Felice Maranz and Ryan Vlastelica, (c) 2025 Bloomberg LP

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