Six months ago, Meta raised its spending forecast by $10 billion and lost 6% of its value in a single trading session.
Then Microsoft and Amazon took their own hits the same earnings season, both marked down for spending more than expected on AI infrastructure...
Wall Street's message was clear… spend too much on AI and we will sell your stock.
But yesterday Google seems to have slowed that narrative
The company raised its 2026 spending guidance by $15 billion, to roughly $200 billion. That's a bigger number than what got Meta punished six months earlier.
Analysts now expect Google’s 2027 spending to reach $257 billion... overtaking Amazon as the biggest AI spender
The stock didn't crash though…
It dipped slightly, then largely held its ground.
So the company just told the market it plans to spend more on AI than any of its rivals, and the market shrugged.
Here's what changed in six months.
When Meta raised its spending forecast back in the spring, investors were still trying to figure out whether AI spending was building something valuable or just burning cash to keep pace with competitors.
The fear was that these companies were locked in an arms race with no clear finish line... spend more… or fall behind…
But with no guarantee the spending would ever pay for itself.
However Google clearly up some of that uncertainty
Google Cloud grew revenue 82% to $24.8 billion for the quarter. The company's backlog of signed cloud contracts, now sits at $514 billion. Including deals with Apple, Meta and Anthropic.
So the CAPEX investments is showing up as revenue, not just as an expense line getting bigger every quarter.
None of this means Alphabet's spending is risk-free. If consensus estimates hold, this level of spending would push the company's free cash flow close to negative for the year. Google also delayed its next flagship AI model by several weeks, at a time when competitors aren't standing still.
But the market's reaction this week suggests something has shifted in how investors are pricing AI capital spending generally.
Rather than treating every new spending number as a red flag, investors now appear to be asking a more specific question…
Are these investments translating into revenue, or is it just a corporate version of keeping up with the Joneses?
Which is a far more useful question than the one being asked 6 months ago.
It also matters for what's coming next.
Microsoft, Amazon and Meta all have earnings next week, and every one of them is going to report their own AI spending numbers.
Amazon in particular has been the most aggressive spender of the group.
So if Google's cloud growth and contract backlog are any indication of what "spending translating into revenue" looks like… that gives us a real benchmark to measure the others against... not just whether they spent more or less than expected… but whether the spending is actually working.
Worth watching closely when those reports land.
Oliver