The AI Capex Warning: Alphabet Sets a Tense Stage for Amazon, Microsoft, and Meta

by Christine Short of Wall Street Horizon, 7/29/26

The AI Capex Warning: Alphabet Sets a Tense Stage for Amazon, Microsoft, and Meta

Key Takeaways

  • All eyes turn to big tech names this week: Apple, Amazon, Meta and Microsoft

  • Q2 S&P 500® profit growth currently stands at 37.9% with 27% of companies having reported

  • Potential earnings surprises this week: Illinois Tool Works, Xylem, Vulcan Materials, GoDaddy and more

Capex Cracks and Mainframe Slumps: What Early Q2 Reports Tell Us About the AI Trade

As the Q2 earnings season kicks into high gear, market sentiment around the AI trade is undergoing a critical sanity check. Alphabet’s second quarter results last week served as a barometer for how Wall Street is weighing artificial intelligence investments against current profitability. While top-line growth remained healthy, investors recoiled at Alphabet’s jaw-dropping $195 billion to $205 billion capex estimate for 2026, triggering immediate post-earnings selling. This backlash sets a tense backdrop for fellow hyperscalers, Amazon, Microsoft, and Meta, who report next week. The market’s message to Big Tech is rapidly shifting from "spend whatever it takes" to "show us the returns," leaving these upcoming reports on high alert for any similar capex-driven margin pressure.1

Tesla presented a different side of the AI equation, beating revenue expectations on the back of record Q2 deliveries that topped 480,000 vehicles (up 25% year-over-year). However, aggressive promotional discounting and surging capital expenditures crushed the bottom line, resulting in a notable profit miss. Historically, Tesla was criticized by analysts for not pouring enough capital into its AI infrastructure compared to tech peers, a narrative that CEO Elon Musk addressed head-on by outlining $25 billion in AI capex for this year. Adding another intriguing layer to the Tesla earnings call, Musk also stoked Wall Street's imagination by teasing the possibility of a future merger between Tesla and SpaceX.2

Rounding out the group, IBM confirmed a grueling quarter that followed last week’s rare preliminary earnings release, an unprecedented move designed to soften the market's initial blow. Beyond soft headline numbers, the real pain came from its core infrastructure division, where high-margin Z mainframe sales plummeted 42% year-over-year. Unlike cloud software names (such as Workday, Snowflake, or Salesforce) where AI tools are directly displacing seat-based models, IBM’s headache is rooted in enterprise capital allocation. Large corporate clients are treating legacy hardware refreshes as discretionary, deliberately pushing off mainframe upgrades to channel cash toward their own AI buildouts. This trend has fueled growing speculation that IBM may start to diversify its focus beyond mega-corporations and target mid-sized enterprises to cushion the blow.3

With those tech reports, and results from 83 other S&P 500 constituents, the blended EPS growth rate moved higher to 37.9% last week, from 24.7% the week prior. Revenue growth also saw a bump to 13.2% from 12.8% in the week prior.4

See more: Big Tech Needs to Justify AI Spending as Investors Dump Stocks