Mega cap tech raises AI spending outlooks

The latest earnings reports from Alphabet, Intel, Microsoft, Meta and Apple show AI infrastructure spending moving from a growth narrative to a cash-flow test. Each company exceeded major revenue expectations, but the sharpest market reactions followed changes in capital expenditure plans and free-cash-flow outlooks rather than headline sales or earnings figures.

Alphabet and Meta faced the steepest pressure after committing more cash to servers, data centers and networking equipment. Microsoft, by contrast, rallied after lowering its calendar-year capital spending outlook and saying it expects to generate positive free cash flow in fiscal 2027. The divergence places greater emphasis on how quickly AI products can convert infrastructure investment into durable revenue and operating cash.

Alphabet’s cloud acceleration comes with negative free cash flow

Alphabet reported second-quarter 2026 revenue of $119.8 billion, up 24% from a year earlier, while operating profit reached $40.77 billion. Net income attributable to shareholders totaled $112.1 billion, a figure that included roughly $99 billion in unrealized gains on equity securities.

Google Cloud was the strongest operating story. Revenue rose 82% year over year to $24.8 billion, accelerating from 63% growth in the preceding quarter and exceeding the $22.3 billion estimate cited in the supplied results. Alphabet said its Gemini Enterprise paid monthly active users increased 40% from the prior quarter, while cloud backlog doubled sequentially to $460 billion.

The company also sharply increased its infrastructure budget. Quarterly capital spending reached $44.92 billion, about twice the prior-year level, with approximately 60% directed toward servers and 40% toward data centers and network equipment. Alphabet lifted its 2026 capital expenditure forecast to between $195 billion and $205 billion, from a previous range of $180 billion to $190 billion, and said spending would rise again in 2027.

That outlay pushed quarterly free cash flow to roughly negative $5.9 billion, Alphabet’s first negative free-cash-flow quarter since its listing, according to the supplied figures. Shares fell more than 4% in after-hours trading and dropped more than 7% intraday on July 23. The reaction suggested that even rapid cloud growth did not fully offset concern over the pace at which Alphabet is committing cash to AI capacity.

Meta’s advertising gains were overshadowed by costs

Meta reported second-quarter revenue of $60.8 billion, a 28% increase from a year earlier, driven largely by $59.36 billion in advertising revenue. Advertising impressions increased 14%, while average ad pricing rose 12%, indicating that Meta was expanding both the volume and yield of its core ad business.

Revenue outside advertising also gained traction. Other Family of Apps revenue exceeded $1 billion in a quarter for the first time, rising 73% on growth in WhatsApp paid messaging and subscriptions.

Expenses rose faster than revenue. Total costs and expenses increased 55% to $42 billion, cutting operating profit by 8% to $18.78 billion. Operating margin fell to 31%, from 43% a year earlier, while GAAP net income declined 14% to $15.85 billion.

Meta spent $31.08 billion on capital expenditures during the quarter, nearly matching its $31.86 billion in operating cash flow. Free cash flow fell to $784 million from $8.54 billion a year earlier. The company raised the low end of its full-year 2026 capex forecast to $130 billion from $125 billion and increased its expected tax rate for the remaining quarters.

Meta shares fell more than 7% after the release and were down close to 10% on July 31. The response resembled the reaction to Meta’s April 29 earnings report, when a higher infrastructure forecast was followed by an after-hours decline of more than 8%.

Microsoft offered a different cash-flow equation

Microsoft’s fiscal 2026 fourth-quarter results showed the same appetite for AI capacity but a more reassuring spending trajectory. Revenue rose 18% to $90 billion, while GAAP net income climbed 31% to about $35.8 billion. The company recorded a $3.2 billion gain related to its investment in Anthropic, contributing to the reported result.

Its Intelligent Cloud division generated $39.3 billion in revenue, up 32%, and Azure revenue rose 43%. Microsoft said Azure’s annual revenue exceeded $100 billion for the first time. Commercial remaining performance obligations, a measure of contracted future revenue, reached $678 billion, up 84% from a year earlier.

Capital expenditures were still substantial: $41 billion in the quarter, up 69% year over year, and $145.3 billion for the full fiscal year. Yet Microsoft reduced its calendar 2026 capex expectation to $175 billion from $190 billion and said it expects positive free cash flow in fiscal 2027.

Shares rose more than 8% in after-hours trading, and the stock posted its best single-day performance in 18 years on July 30, according to the supplied data. Microsoft’s response shows that markets can accept enormous AI infrastructure budgets when management gives a clearer path to moderating outlays and restoring cash generation.

The company also extended the depreciation life assumed for office and data-center buildings to 25 years from 15 years. The accounting change lowers annual depreciation expense, though it does not change the amount of cash spent on facilities.

Intel expands its data-center investment

Intel reported second-quarter revenue of $16.13 billion, up 25% year over year and its fastest growth in more than 15 years, according to the supplied figures. Data Center and AI revenue increased 59% to $6.3 billion.

The chipmaker generated $7 billion in operating cash flow and reported non-GAAP net income of $2.2 billion, or $0.42 a share. Its GAAP result remained negative because of fair-value changes linked to U.S. government-held shares, according to the supplied account.

Intel raised its 2026 capital spending outlook from $18 billion to more than $20 billion and indicated that 2027 spending would be substantially higher. The stock’s volatile response — first declining, then rising more than 13% after hours before reversing lower — reflected the competing forces in its report: stronger demand and guidance alongside an expanding investment requirement.

Apple faces demand and supply constraints

Apple reported fiscal third-quarter revenue of $109.42 billion, up 16%, and net profit of $29.79 billion, up 27%. iPhone revenue increased about 22% to $54.25 billion, while Mac sales rose about 29% to $10.35 billion.

Its outlook was more restrained. Apple projected fiscal fourth-quarter revenue growth of 9% to 11%, below the 12.1% expectation cited in the supplied material. It forecast gross margin of 47% to 48%, compared with 50.1% in the reported quarter, which benefited from roughly two percentage points of tariff rebates.

Apple said foreign exchange would reduce revenue growth by about 2.5 percentage points and warned that chip and memory shortages would worsen sequentially, limiting production of iPhones, Macs and iPads. Shares fell more than 8% after the report, erasing more than $300 billion in market value in one day, according to the supplied figures.

Across the group, cloud services, enterprise AI tools and data-center chips are growing faster than many legacy businesses. Yet the earnings season also drew a sharper line between companies funding AI expansion from strong operating cash flows and those whose capital budgets are beginning to absorb nearly all of that cash.