Key takeaways:
- The core businesses of four of the largest tech companies accelerated in the first quarter, even as AI-related capital spending surged. There was evidence that AI enhanced ad targeting, user engagement, and monetization across their platforms.
- Agentic AI emerged as a consensus theme across all four companies, signaling a structural shift toward recurring, usage-based compute demand.
- Aggregate CapEx approaching $750 billion in 2026 represents a meaningful injection into the real economy. Investors should consider downstream implications for semiconductors, power infrastructure, and data center supply chains.
Four of the largest AI platform and cloud computing companies – Microsoft, Alphabet, Amazon and Meta – reported earnings after market close on April 30. Leading up to these results, the key question was whether there would be tangible evidence of returns on AI infrastructure spending, both within cloud divisions and across core businesses.
In our view, the results helped bring clarity to that question: Monetization is accelerating, cloud backlogs are at record levels, and margins are holding up alongside revenue growth.
Core and cloud growth accelerated
Core businesses accelerated for the four tech firms, even as AI-related capital spending surged. Amazon’s North America retail segment grew 12% year over year, up from 8% in the prior-year period. Revenues for Alphabet’s search business – a segment some had declared in decline not long ago – rose 19%, an acceleration from 10% a year earlier. Meta’s ad impressions climbed 19% versus 5% in the year-ago quarter. Microsoft’s Productivity and Business Solutions segment grew 13%, holding steady against a strong prior-year comp.
Based on these companies’ results, it is clear that AI is enhancing ad targeting, user engagement, and monetization across their businesses platforms – not crowding out core revenue.
Cloud revenues showed similar momentum. Amazon Web Services grew 28%, its fastest pace since the first half of 2022 when the business was less than half its current size. Microsoft Azure grew roughly 39%. Google Cloud posted 63% growth. These are businesses approaching roughly $150 billion, $108 billion, and $80 billion in annual recurring revenue, respectively.
All major cloud providers reported strengthening demand, suggesting the addressable market for AI compute and storage is expanding rather than being redistributed. These are enterprise-scale (not early adopter) deployments moving into production, and in some cases growth remains constrained by available capacity.
Agentic AI emerges as the next platform shift
All four CEOs emphasized agentic AI as the next major platform shift. Agents were described as the “dominant workload”: the primary means through which companies will derive value from AI and the tools designed to work continuously toward user goals.
The convergence of this messaging suggests a structural shift in how compute is consumed and monetized – from one-time software licenses toward recurring, usage-based demand. This represents another inflection point for compute and storage requirements.
Capital spending reflects demand
Aggregate capital expenditure across the four companies is tracking toward roughly $750 billion for calendar year 2026, with management teams signaling higher spend in 2027. Include Oracle and CoreWeave and the figure exceeds roughly $800 billion — a level of reinvestment that rivals historic fiscal stimulus. This figure represents a direct injection into the real economy supporting growth across semiconductors, power infrastructure, data centers, and the broad supplier ecosystem needed to build and operate these facilities.
Increasing capital expenditures reinforce the fact that demand for AI compute is still running well ahead of supply. Rising component costs, particularly in memory and networking, are adding further pressure on spending levels, while token consumption has increased since budgets were set earlier this year.
Despite the heavy investment, revenue growth and margins have expanded alongside it. Some of these companies remain free cash-flow positive; others are temporarily negative but may stand to benefit from accelerating revenue and committed backlogs.
AI is supporting earnings growth today
We believe these latest earnings results counter the bear case that AI spending crowds out core profitability. Ad conversion rates are improving. Search engagement is rising. Revenue per user is expanding. Cloud demand is spilling over into broader infrastructure spend.
Importantly, AI gains are supporting earnings growth today while extending the duration of that growth. Overall, we believe these results help reinforce the durability of the AI investment cycle.
IMPORTANT INFORMATION
References made to individual securities do not constitute a recommendation to buy, sell or hold any security, investment strategy or market sector, and should not be assumed to be profitable. Janus Henderson Investors, its affiliated advisor, or its employees, may have a position in the securities mentioned.
Artificial intelligence (“AI”) focused companies, including those that develop or utilize AI technologies, may face rapid product obsolescence, intense competition, and increased regulatory scrutiny. These companies often rely heavily on intellectual property, invest significantly in research and development, and depend on maintaining and growing consumer demand. Their securities may be more volatile than those of companies offering more established technologies and may be affected by risks tied to the use of AI in business operations, including legal liability or reputational harm.
Technology industries can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, competition from new market entrants, and general economic conditions. A concentrated investment in a single industry could be more volatile than the performance of less concentrated investments and the market as a whole.