Amazon and Alphabet’s AI spending faces billion-dollar litmus test
Investors will get a clearer read this week on whether Big Tech’s vast AI spending is turning into real returns, as Alphabet and Amazon report earnings amid heightened market sensitivity to cloud growth, margins and costs.
Both tech giants sit at the centre of the AI boom, but recent volatility in US tech stocks has shifted the focus from ambition, to execution.
After Microsoft’s results sparked a sharp sell-off last week on fears that heavy AI investment is weighing on near-term returns, the bar is high for the remaining Magnificent Seven names yet to report.
Alphabet will be first up on Wednesday, after market close. The Google owner enters earnings season in confident territory compared to some of its rivals, after recently becoming the world’s second most valuable company.
The search titan hit a $4 trillion valuation on the back of a strong 2025 rally, and its investors will be undoubtedly looking for confirmation that momentum in Google Cloud and advertising can continue to support that valuation.
AI reach vs regulatory risk
Alphabet has pushed its Gemini models deep into its core products, like Search and Android, or Workspace and Google Cloud.
A multiyear agreement with Apple to use Gemini to overhaul Siri from late 2026 offers access to more than two billion active devices, and reduces reliance and search revenues alone.
Cloud remains the key growth engine for the tech titan. Google Cloud ended the third quarter with a $155bn backlog, underlining multi-year revenue visibility, while recent growth above 30 per cent has helped shift perceptions of the business.
Markets will also be looking out for updates on Alphabet’s planned $32bn acquisition of cloud security firm Wiz, which would deepen its enterprise offering, if regulators give the green light.
Advertising, still Alphabet’s main profit driver through Search and Youtube, has so far probed resilient despite fears that AI-powered answers could erode clicks.
Any sign of softening here would be closely scrutinised, particularly as Google faces ongoing antitrust pressure across the pond.
Amazon will follow on Thursday, with expectations shaped by a mix of accelerating cloud growth and aggressive cost cutting.
The group confirmed 16,000 job cuts just last week, taking corporate redundancies to around 30,000 in six months, as chief executive Andy Jassy pushes to unwind pandemic-era expansion.
Meanwhile, Amazon’s cloud platform, AWS, ended the third quarter with a backlog close to $200bn, while revenue growth accelerated to just over 20 per cent, its strongest pace in almost three years.
A $38bn, seven-year deal to supply cloud capacity to OpenAI has also reinforced AWS’s position as a critical player in AI infrastructure.
And, with markets increasingly nervous about how long AI investments will take to pay off, any indication that spending is squeezing profitability could weigh on the stock.
Amazon’s rapidly-growing ad arm, a high-margin bright spot, is also set to feature prominently.
Together, the results from Alphabet and Amazon will continue the Big Tech litmus test for the next phase of AI build-out.