CBK

[SAN FRANCISCO] The core businesses of America’s technology giants – the advertising, consumer and retail machines propping up a collective US$750 billion in artificial intelligence spending in 2026 – are starting to show signs of slowing.

In some cases, they are being cannibalised by the very technology the firms are betting the house on.

Earlier this week, Google owner Alphabet reported that ad sales from search and other channels – a business line that accounts for roughly half of overall revenue – grew at the slowest pace in five quarters.

Yet the company maintained a capital spending outlook of as much as US$205 billion for 2026.

Amazon said on Thursday (Oct 29) that growth in both its core e-commerce juggernaut and the advertising business slowed last quarter, before reiterating its plan for roughly US$220 billion in capital expenditures in 2026.

Microsoft and Meta Platforms similarly maintained their spending guidance, while posting results that ultimately underwhelmed investors.

The earnings reports and the ensuing stock sell-offs expose the tensions escalating over big tech’s transition to new AI-powered products, and the spending required to get there.

The companies have been issuing unprecedented levels of debt, selling equity, signing multibillion-dollar data centre deals and taking on trillions of dollars in future obligations to pay for a worldwide build-out of AI infrastructure.

All this while new products are eroding the profitability and drawing attention away from some of their legacy offerings.

Shares take a hit

Investor patience is wearing thin.

Alphabet’s shares plunged by a record on Thursday, wiping out nearly US$500 billion in market value. Amazon’s stock was down 7 per cent in late trading.

Meta has fallen 10 per cent since reporting earnings last week, when it told investors that it plans to bet even more aggressively on AI while warning that the new agentic AI app Muse is proving to be incredibly computing intensive.

The market is “scratching its head – how does all this pay off?” Dan Morgan, senior portfolio manager at Synovus Trust, said following Alphabet’s earnings.

Even Microsoft, which reported strong growth in its cloud business and kept spending in check, could not avoid the fallout.

The company’s shares initially surged after the firm reported that sales at Azure, the closely-watched cloud computing division, grew 48 per cent to US$33.2 billion during the quarter ending in September. By the time markets closed on Thursday, the stock had erased all gains and was down 0.2 per cent.

Amazon’s results were more nuanced. The company had shifted its annual Prime Day from the third quarter in 2025 to the second quarter in 2026, which explained some of the slowdown. But analysts had already adjusted their estimates with that in mind, and results still came up short.

The commerce giant’s advertising services unit saw growth of 11 per cent, the slowest pace since Amazon first broke it out as a separate category in 2022.

And the online stores business grew by just 2 per cent, a level not seen in more than three years when people resumed pre-pandemic spending habits and online shopping cooled.

Those results overshadowed the growth of Amazon’s cloud-computing segment and stoked investors’ doubts about its aggressive investments in AI.

Cloud computing was also a bright spot for Google.

The cloud division’s sales more than doubled from a year earlier. Operating income more than tripled. The unit’s chief executive officer, Thomas Kurian, joined the earnings call for the first time, signalling the business’ importance to Google going forward.

But investors were more fixated on the cracks emerging within Google Search, which remains the lifeblood of the company.

To stay relevant as chatbots such as ChatGPT become more popular, Google has woven more AI into the search engine, including a dedicated tab called AI Mode. But the growing popularity of that feature has hurt the profitability of Google Search.

Chief business officer Philipp Schindler acknowledged on Wednesday that the firm is seeing “lower monetisation” for queries with AI Mode, an admission that sent its stock falling further.

Schindler said the company is working to bring more ads to AI Mode and is optimistic about the product’s trajectory.

Google has struggled in 2026 to keep up in the AI race against startups Anthropic and OpenAI. If the company can regain footing on AI model development, it will likely resume delivering the returns that investors have come to expect, said Mandeep Singh, an analyst with Bloomberg Intelligence.

“With all these transitions, sometimes we get too fixated on the cash cow business,” Singh said. “Given how Cloud has been expanding margins, I feel a combination of the cloud business and search, once they are at the frontier, would take their profitability back to where they were.”

It is also common for new ad formats to launch with lower margins that gradually increase over time, Gene Munster, managing partner of Deepwater Asset Management, said of Google’s lower AI Mode monetisation.

The firm’s larger challenge is building agents that can make purchases on behalf of users and pocketing a cut of those transactions – a business model that many in Silicon Valley believe is within reach after the success of Meta’s Muse personal assistant.

“The old way of doing it was blue links or display advertising to influence consumer behaviour,” Munster said. “The new way is how do you influence the bot.” BLOOMBERG