Alphabet, Amazon buy; Microsoft a hold as AI capex soars

All three companies have taken out tens of billions of dollars in loans to finance their AI infrastructure build-outs — an act the article calls inconceivable a year ago. They have each benefited from accelerating revenue growth, early signs the investments are paying off, which likely prompted them to increase capex further.

Alphabet has maintained one attribute the other two hyperscalers have lost: positive free cash flow, which almost ensures it can afford to keep making these investments. Alphabet also induced Apple to adopt its foundation models for Apple Intelligence, and its Waymo subsidiary could meaningfully contribute to financials as soon as 2027. Amazon's P/E of 20 would have been unthinkable a few years ago when investors bought its stock at ratios above 50. Microsoft has the strongest free cash flows of the three, almost $67 billion in fiscal 2026, yet its Bing search engine has not taken much market share from Google Search despite ChatGPT's impact, and it is now developing AI independently of OpenAI.

The outcome for these three hinges on whether the massive spending brings the desired returns. If it does not, the article warns even tech heavyweights like these could face significant pain. For Alphabet and Amazon, reasonable valuations may reduce downside risk; for Microsoft, the test is whether it can catch up to its Magnificent Seven competitors.