The five largest AI hyperscalers — Alphabet (GOOGL 0.15%) (GOOG 0.28%), Amazon (AMZN 0.54%), Meta Platforms (META 1.06%), Microsoft (MSFT +1.11%), and Oracle — reported about $414 billion in capital expenditures last year, up 70% from the prior year. Those companies expect capital expenditures to climb nearly 70% to $700 billion this year.
However, whether or not that spending ultimately leads to greater profitability depends on the extent to which customers adopt AI software and services. Investors will get insight into that situation today, because four of those hyperscalers report financial results. Good news could drive the S&P 500 (^GSPC 0.49%) higher, and bad news could drag the benchmark index lower.
Here’s what investors should know.
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Four hyperscalers at the center of the AI boom report quarterly earnings today
Alphabet, Amazon, Meta Platforms, and Microsoft account for about 18% of the S&P 500, which means the index’s performance is heavily influenced by those four hyperscalers. Here’s what Wall Street expects when they report earnings after the stock market closes on Wednesday.
Alphabet
The consensus estimate says Alphabet’s revenue will increase 19% to $117.2 billion and GAAP earnings will drop 7% to $2.62 per share. Investors will watch the core advertising business as a gauge for the broader economy, but they will focus on Google Cloud, where sales growth has accelerated in three straight quarters because of strong demand for Gemini models and custom artificial intelligence chips called tensor processing units (TPUs).
Amazon
The consensus estimate says Amazon’s revenue will increase 21% to $188.9 billion and GAAP earnings will increase 3% to $1.65 per share. Investors will look for margin expansion in the e-commerce division, which should materialize over time because of investments in AI and robotics. Investors also want to see strength in the cloud computing division, where revenue growth accelerated to 24% in the fourth quarter, the fastest growth in three years.
Meta Platforms
The consensus estimate says Meta Platforms’ sales will increase 31% to $55.5 billion and GAAP earnings will increase 5% to $6.74 per share. The company’s investments in AI have so far boosted engagement across its social media properties, leading to strong demand from advertisers, but investors want to see that trend continue or even intensify. They will also want to know how Meta’s newest AI model, Muse Spark, might move the financial needle.
Microsoft
The consensus estimate says Microsoft’s sales will increase 16% to $81.3 billion and non-GAAP earnings will increase 17% to $4.06 per share. Investors want evidence Microsoft is monetizing Copilot 365, especially because competitors such as Anthropic and OpenAI are churning out generative AI tools that could disrupt the software industry. Investors also want to see sales growth reaccelerate in the cloud computing division Azure.
Here’s the big picture: In general, Wall Street expects muted earnings growth from these companies. That’s because heavy investments in AI infrastructure are projected to compress profit margins in the near term. Naturally, investors want reassurance that those investments will eventually translate into greater profitability. The S&P 500 could drop sharply if these companies fail to ease lingering doubts when they report earnings.
The Federal Reserve will announce its interest rate decision today
Earnings reports are not the only catalyst that could move the stock market this week. The Federal Reserve will announce its interest rate decision around 2:00 p.m. ET today. The odds of a rate cut are essentially zero, because inflation has reaccelerated since the Iran conflict began in late February.
However, investors will listen closely to what Chair Jerome Powell says about the economy during his press conference, looking for insight into the future trajectory of interest rates. The S&P 500 is currently near its record high, but any indication that the Fed’s next move could be a rate increase (rather than a rate cut) could cause the stock market to drop sharply.
Trevor Jennewine has positions in Amazon. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft, and Oracle. The Motley Fool has a disclosure policy.
