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Microsoft ( MSFT ) boosts capex after Google's hike last week

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AI powering bumper results on cloud, advertising gains

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Payoffs from AI justifying hefty capital spending,

analysts say

By Aditya Soni and Deborah Mary Sophia

July 31 (Reuters) - Big Tech is spending more than ever

on artificial intelligence - but the returns are rising too, and

investors are buying in.

AI played a bigger role in driving demand across internet

search, digital advertising and cloud computing in the

April-June quarter, powering revenue growth at technology giants

Microsoft ( MSFT ), Meta, and Alphabet.

Betting that momentum will sustain, Microsoft ( MSFT ) and Alphabet

decided to ramp up spending to ease capacity shortages that have

limited their ability to meet soaring AI services demand, even

after several quarters of multi-billion-dollar outlays.

The results offer the clearest sign yet that AI is emerging

as a primary growth engine, although the monetization journey is

still in its early days, investors and analysts said.

The upbeat commentary also bodes well for Amazon.com ( AMZN )

, the largest U.S. cloud provider, which will report

earnings on Thursday after markets close, and underscores how

surging demand for the new technology is shielding the tech

giants from tariff-driven economic uncertainty hobbling other

sectors.

"As companies like Alphabet and Meta race to deliver on the

promise of AI, capital expenditures are shockingly high and will

remain elevated for the foreseeable future," said Debra Aho

Williamson, founder and chief analyst at Sonata Insights.

But if their core businesses remain strong, "it will buy

them more time with investors and provide confidence that the

billions being spent on infrastructure, talent and other

tech-related expenses will be worthwhile," she added.

Microsoft ( MSFT ) shares were 9% higher in extended trading on

Wednesday, putting the Windows maker on track to cross $4

trillion in market value - a milestone only chip giant Nvidia ( NVDA )

has reached so far.

Meta was up even more, rising 11.7% and on course to add

nearly $200 billion to its market value of $1.75 trillion.

Amazon ( AMZN ) gained over 3%.

All the companies have faced intense scrutiny from investors

over their ballooning capital expenditures, which were expected

to total $330 billion this year before the latest earnings.

And until a few days ago, the Magnificent Seven stocks were

also trailing the S&P 500 in year-to-date performance.

SILENCING DOUBTS

Microsoft ( MSFT ) said on Wednesday it would spend a record $30

billion in the current quarter, after better-than-expected sales

and an above-estimate forecast for its Azure cloud computing

business showcased the growing returns on its massive AI bets.

The prediction puts Microsoft ( MSFT ) on track to potentially

outspend its rivals over the next year. It came after

Google-parent Alphabet beat revenue expectations and raised its

spending forecast by $10 billion to $85 billion for the year.

Microsoft ( MSFT ) also disclosed for the first time the dollar

figure for Azure sales and the number of users for its Copilot

AI tools, whose adoption has long been a concern for investors.

It said Azure generated more than $75 billion in sales in

its last fiscal year, while Copilot tools had over 100 million

users. Overall, around 800 million customers use AI tools

peppered across Microsoft's ( MSFT ) sprawling software empire.

"It's the kind of result that quickly silences any doubts

about cloud or AI demand," said Josh Gilbert, market analyst at

eToro. "Microsoft ( MSFT ) is more than justifying its spending."

Other AI companies have also attracted a clutch of users.

Alphabet said last week its Gemini AI assistant app has more

than 450 million monthly active users. OpenAI's ChatGPT, the

application credited with kicking off the generative AI frenzy,

has around 500 million weekly active users.

Meta, meanwhile, raised the bottom end of its annual capital

expenditure forecast by $2 billion, to a range of between $66

billion and $72 billion. It also said that costs driven by its

efforts to catch up in Silicon Valley's intensifying AI race

would push 2026 expense growth rate above 2025's pace.

Better-than-expected sales growth in the April-June period

and an above-estimate revenue forecast for the current quarter,

however, assured investors that strength in the social media

giant's core advertising business can support the massive

outlays.

"The big boys are back," said Brian Mulberry, portfolio

manager at Zacks Investment Management, which holds shares in

all three major U.S. cloud providers. "This simply proves the

Magnificent Seven is still magnificent at this moment in time."