Big Tech Reports Against Its Own Promises

NEW YORK, Oct. 25 — InIn July, Microsoft, Alphabet and Amazon told investors what the rest of the year would cost, and this week each reports against its own forecast: Microsoft and Alphabet on Wednesday, Oct. 28, and Amazon on Thursday, Oct. 29. Apple follows on Nov. 2.

The forecasts are specific. Microsoft said it would spend more than $50 billion on capital projects in its quarter to September and expected Azure, its cloud-computing business, to grow about 45 percent in constant currency. Alphabet raised its 2026 capital-spending range to $195 billion to $205 billion. Amazon forecast third-quarter sales of $197.0 billion to $202.0 billion and operating income of $22.5 billion to $26.5 billion.

By this paper’s arithmetic, each of the three forecasts implies more capital spending in the second half of 2026 than in the first. The question this week is less whether the spending rises than whether revenue keeps pace. Keith Weiss, an analyst at Morgan Stanley, put the worry to Microsoft in January: “CapEx is growing faster than we expected, and maybe Azure is growing a little bit slower than we expected.” Meta’s $34.91 billion of third-quarter capital spending, reported on Oct. 21, is already in.

The Promises

Microsoft’s number comes with an accounting change: from July it treats its data centers as lasting 25 years rather than 15, which moves more future leases out of capital spending. Amy Hood, its chief financial officer, said on July 29 that spending in the September quarter would be “over $50 billion including the lease reclassification impact from the useful life update,” and that the change “adjusts our expectation to approximately $175 billion” for calendar 2026.The AccountingMicrosoft counts finance leases in capital spending and operating leases outside it; the longer useful lives shift more future data-center leases into the second kind. In April it had forecast roughly $190 billion for 2026, including about $25 billion from higher component prices. Having spent $72.9 billion in the first half of the year, it would have about $102 billion left for the second, by this paper’s arithmetic.

Microsoft has beaten its own Azure forecast in each of the past three quarters. It forecast growth of about 37 percent in constant currency for the December quarter and reported 38; 37 to 38 percent for March, and reported 39; 39 to 40 percent for June, and reported 43.Constant CurrencyGrowth in constant currency strips out changes in exchange rates. In the June quarter Azure’s reported and constant-currency growth were the same, 43 percent. Of Azure this quarter, Ms. Hood said: “Even with the strong close to Q4, we continue to expect H1 growth to accelerate.” Its fiscal first half runs to December.MSFTNasdaq521.91▼8.23−1.6%Microsoft · Friday’s session

Alphabet’s range was $180 billion to $190 billion until July 22, when Anat Ashkenazi, its chief financial officer, said the increase was “primarily due to an acceleration in the delivery of capacity to meet growing demand.” Having spent $80.6 billion on property and equipment in the first half, Alphabet must spend $114.4 billion to $124.4 billion in the second to land in the range, by the same arithmetic. She also said that expanding the use of “third-party capacity in Q3 as a bridging strategy” would “create modest margin pressure in the near-term.” Google Cloud’s operating margin was 35.6 percent in the second quarter.GOOGLNasdaq279.84▼3.98−1.4%Alphabet · Friday’s session

Amazon’s release gave no spending forecast. On its July 30 call Andy Jassy, its chief executive, said Amazon would spend “approximately $220 billion in cash CapEx in 2026,” with “the higher cost of memory” pushing the figure up from about $200 billion, according to a transcript published by The Motley Fool. “Even at that amount, we will still not have enough capacity to meet all the demand we have in 2026,” he said. Amazon’s first-half purchases of property and equipment, net of proceeds and incentives, were $96.3 billion, which by the same arithmetic leaves about $124 billion for the second half.AMZNNasdaq240.35▼3.44−1.4%Amazon · Friday’s session

Apple is the exception: its payments for property, plant and equipment fell 28 percent in the first nine months of its fiscal year, to $6.8 billion.

None of these forecasts is a contract. Asked by Mark Moerdler of Bernstein how Microsoft would protect itself “if there really is overcapacity and overbuilding of data centers,” Ms. Hood pointed to the processors, which make up most of its spending: “if the demand environment changes, you just slow down what is, in fact, the largest component and the driver of COGS.” “The investment into land and data center builds is actually quite flexible,” she said.

The investment into land and data center builds is actually quite flexible.

The Clouds

The case for the spending is cloud revenue, and its growth has been quickening. In the second quarter Google Cloud’s revenue grew 82 percent from a year earlier, to $24.8 billion, and AWS’s 37 percent, to $42.2 billion; both rates have risen five quarters in a row. Azure’s 43 percent was its fastest in the eight quarters charted below. Alphabet began recording sales of its TPU chip systems in the second quarter, but said growth “accelerated meaningfully, even after excluding the impact of TPU system sales.”The BacklogsMicrosoft’s commercial remaining performance obligation, contracted revenue not yet recognized, rose 84 percent to $678 billion at June 30, and 25 percent excluding OpenAI. Google Cloud’s backlog was $514 billion. Mr. Jassy put AWS’s at $496 billion, by The Motley Fool’s transcript.

The quarterly filings that follow the results will update a commitment the capital-spending line leaves out. Microsoft’s leases not yet begun, “primarily for datacenters,” rose to $329.1 billion at June 30 from $196.6 billion three months earlier, “with some arrangements subject to certain contractual conditions being met.” At June 30, Amazon’s “leases not yet commenced” were $137.2 billion; Alphabet disclosed $85.2 billion of future lease payments, primarily for data centers, and a separate $5.8 billion short-term lease commitment due to begin in the third quarter. Alphabet also backstops certain third parties’ payment obligations relating to data centers, through credit derivatives with a notional value of $43.8 billion, up from $16.9 billion at the end of 2025. Each company counts on its own basis.

The Week

Samsung Electronics and SK hynix, the South Korean chipmakers, report the same week; Samsung has guided to about 107.4 trillion won of third-quarter operating profit. Its call is at 10 a.m. Thursday in Seoul, 9 p.m. Wednesday in New York. SK hynix holds its call at 9 a.m. Wednesday in Seoul, 8 p.m. Tuesday in New York. The consensus for its third-quarter operating profit was 76.964 trillion won on Oct. 19, by the data provider FnGuide, as reported by MoneyToday; that would be a sixth straight record, after preliminary consolidated operating profit of 60.54 trillion won in the second quarter. GE Vernova, the power-equipment maker, and Vertiv, which sells power and cooling equipment for data centers, report before the market opens on Wednesday.

The Federal Reserve announces its rate decision on the same Wednesday, after raising its target range on Sept. 16 by a quarter point, to 3.75 to 4 percent. In September its statement came at 2 p.m. The 10-year Treasury yield ended Friday at 5.00 percent, by the Treasury’s figures.

The four companies’ shares ended last week apart. Alphabet closed Friday at $320.21, down 5.98 percent on the week; Microsoft at $524.51, down 0.86 percent; Amazon at $248.00, down 0.80 percent; and Apple at $347.73, up 1.24 percent.

What to watch: on Tuesday night, SK hynix’s results. On Wednesday, the Fed; Microsoft after the close, with Azure against about 45 percent in constant currency; and Alphabet’s call at 4:30 p.m. Eastern, for Google Cloud’s margin and any first figure for 2027, when it expects spending to “increase significantly.” On Thursday, the first estimate of third-quarter economic growth at 8:30 a.m., and Amazon’s call at 5 p.m. Eastern, for AWS and its spending against about $220 billion. Then Apple, on Monday, Nov. 2.