The Race for AI Supremacy: Major Players Report Earnings

As artificial intelligence technology advances rapidly, the competition among top players—referred to as the “Magnificent Seven”—is heating up. This rivalry draws keen attention from investors, particularly focused on each company’s quarterly earnings and the effectiveness of their AI investments.

Third-quarter earnings released recently show promising AI growth among leaders Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), Microsoft (NASDAQ: MSFT), and Meta Platforms (NASDAQ: META). However, while Alphabet’s shares surged about 3% following its earnings report on Tuesday, both Microsoft and Meta experienced declines of about 5% and 4%, respectively, by midday Thursday. This difference in stock performance raises important questions about their financial strategies.

Strong AI-Oriented Growth Across Leaders

Both Alphabet and Microsoft reported significant growth in their cloud-related revenues, reflecting their successful AI investments. The data highlighted below shows their year-over-year growth:

Data source: Company press releases. YOY = year over year.

Meta’s AI-focused advertising revenue growth slowed from 22% in the June quarter to 19% in September; however, it still exceeded analysts’ forecasts.

Overall, all three companies demonstrated robust growth in areas closely tied to AI. Google’s and Microsoft’s cloud operations accelerated, while Meta’s business performed above expectations.

Although Microsoft and Google implement AI across various aspects of their operations, quantifying the specific impact on services like Google Search, YouTube, and Microsoft Office remains complex. Nevertheless, their cloud growth effectively serves as a key indicator of their AI “returns.”

Understanding the Spending Discrepancies

The differences in stock performance can mainly be attributed to reported and anticipated capital spending figures. For instance, Meta raised its capital spending forecast for the year to a range between $38 billion and $40 billion, slightly larger than the previous estimate. However, CFO Susan Li’s comments about future spending were aggressive, indicating substantial growth in infrastructure expenses in 2025.

Meta is already heavily investing in AI infrastructure for its core products, its Llama generative AI models, and the Reality Labs segment. This aggressive spending outlook may have caused some investors to raise their eyebrows.

Comparing capital expenditures for Alphabet and Microsoft during the September quarter reveals a notable contrast.

Data source: Company press releases. YOY= year over year. QOQ = quarter over quarter.

Despite faster cloud growth for Alphabet, their capital spending saw a slight decline from the previous quarter—though it remained 62.1% higher than last year. Conversely, Microsoft’s expenditures increased by 7.6% since the last quarter, signaling ongoing investment in AI infrastructure.

During Alphabet’s recent conference call, newly appointed CFO Anat Ashkenazi indicated that capital spending for the fourth quarter would remain about flat compared to the previous quarter. She also hinted at future spending increases for 2025 without providing specifics. Microsoft, however, committed to continuing its spending growth, especially in the upcoming December quarter and into 2025.

Potential Future Differences in Strategy

A key factor that may differentiate these companies is their approaches to creating custom AI hardware. Both Microsoft and Meta are relatively new to developing their own AI chips, while Alphabet has been producing its tensor processing units (TPUs) since 2015. This long-term investment allows Alphabet to produce custom chips more cheaply than purchasing Nvidia GPUs, which are likely the main hardware for Microsoft and Meta, subsequently raising their infrastructure costs. Consequently, high prices for Nvidia products led one analyst to downgrade Microsoft’s stock recommendations.

While Alphabet currently appears to have an advantage in hardware production, Microsoft and Meta are ramping up their initiatives to design their own chips as well. Investors should keep a close eye on announcements regarding custom AI chips and the evolution of capital spending from all three companies.

The encouraging aspect for investors is the strong and growing demand for AI across the board among these tech giants.

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Billy Duberstein and/or his clients have positions in Alphabet, Meta Platforms, and Microsoft. The Motley Fool has positions in and recommends Alphabet, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.