Alphabet told investors it plans to spend more on data centers and AI next year than anyone expected.
That is a lot of concrete, chips and electricity.
The market did not cheer. That may not sound terrible - until you remember the stock had already risen 70% over the previous 12 months. Investors got paid for a good run, and they did not like the bill for the next one.
The real concern is what came with that spending plan. The company borrowed heavily to fund the buildout.
Amazon's debt load grew sharply, rising 81% to $119 billion between the end of December and the end of March.
Longbow Asset Management chief executive Jake Dollarhide described the mood as "growing AI fatigue." He pointed to the sudden questioning of huge spending budgets and the debt piling up across Silicon Valley's biggest names.
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Still, the spending is not random. Google's cloud business grew at 82% in the second quarter, up from 63% in the prior quarter. That is a rocket ship.
Evercore ISI analyst Mark Mahaney said it is "hard to see anyone matching" that growth rate. But the cost of fueling that rocket is now front and center.
After Alphabet's stumble, their numbers carry extra weight.
Mark Mahaney wrote that Alphabet's move "increases the odds of similar behavior" from the other three. The average analyst forecast for Amazon's 2026 capital spending already jumped nearly $2 billion after Alphabet's report, to $207.4 billion.
Microsoft is looking at around $190 billion. Meta could spend as much as $145 billion.
Derrick Wood, an analyst at Cowen, put it bluntly. "If they raise capex again, based on what we saw in the reaction of Google, it's probably going to lead to selling pressure in the stock."
But not everyone is running scared. Wedbush analysts argued that a spending boost for Amazon is a worthwhile trade-off. They pointed to the company's cloud business re-accelerating and its expanding advantages in areas like Alexa and logistics. Amazon CEO Andy Jassy said in April that the spending plan is "largely the same," so any change would be notable.
Meanwhile, the cloud businesses themselves are growing fast. In the first quarter, Microsoft's cloud offerings including Azure expanded by 40%. Amazon Web Services grew 28%.
Analysts expect similar numbers in the second quarter.
Alphabet CEO Sundar Pichai argued that relying on external providers for additional computing capacity to serve cloud clients would produce strong profit margins in the coming years, even given the expense.
This wave of AI infrastructure spending is among the largest in corporate history, echoing previous tech buildouts like the construction of cloud data centers and fiber optic networks. Yet the scale and speed of current investments are unprecedented, with the four largest tech companies collectively spending hundreds of billions of dollars. Investors are now scrutinizing whether these outlays will eventually yield proportional returns or lead to an era of overcapacity and squeezed margins.
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