Investors demand AI returns from Big Tech

Big Tech earnings this week signalled a tougher investor stance on AI spending: markets are tolerating large outlays only when they translate into clear growth, and punishing firms that fail to show near‑term returns. Share moves around major reports highlighted the divide—Meta rallied sharply after reporting strong ad revenue tied to AI‑boosted targeting and issuing an upbeat forecast, while Microsoft slid after Azure growth marginally beat expectations and investors balked at its massive capital expenditure program.

Meta said AI enhancements helped drive a 24% jump in quarterly revenue and underpin an aggressive capex plan—management expects capital spending to rise substantially this year to support AI infrastructure. Microsoft, an early investor in OpenAI and a past beneficiary of first‑mover advantage, now faces mounting pressure to justify more than $200 billion of AI‑related investment since fiscal 2024 amid rising competition from rivals such as Google’s Gemini and slower‑than‑hoped cloud momentum.

Earnings season has sharpened investor focus on concrete AI metrics: revenue directly attributable to AI, customer adoption of AI products, pricing power and productivity gains. Firms that can point to measurable ad or cloud revenue lifts have been rewarded; those emphasising long‑term potential without granular near‑term evidence have seen shares fall. Cloud remains a key battleground—demand from AI workloads is strong, but pricing pressure and higher costs are constraining immediate margin upside.

Analysts say the market has moved from broad enthusiasm to selective scrutiny. With elevated rates and high equity valuations, investors demand clearer roadmaps showing how AI investments will scale into profitable offerings. Concerns about commoditization of AI services, intensifying competition, and regulatory risks add to the urgency for demonstrable execution.

Companies are responding by breaking out AI‑related metrics more explicitly and pointing to customer contracts and usage growth, but uncertainty over timing persists. The prevailing message from markets is that strategic commitment to AI is necessary but no longer sufficient: investors now require disciplined capital allocation and transparent evidence that AI spending is driving revenue and margin improvement. Future earnings reports will be judged on those tangible indicators, and firms that fail to deliver risk further investor repricing.