Why Is Big Tech Spending $78 Billion on AI? | Bloomberg Open Interest 10/30/2025

Transcript

MATT: DAY IN THE DOLDRUMS AFTER SOME BIG SPENDING ANNOUNCEMENTS. 30 MINUTES UNTIL THE CASH TRADE. I’M MATT MILLER. DANIBURGER IS OFF TODAY. "BLOOMBERG OPEN INTEREST" STARTS RIGHT NOW. MATT: PRESIDENT TRUMP CALLS HIS MEETING WITH CHINA’S PRESIDENT XI TRULY GREAT, WITH A HOST OF MARKET-FRIENDLY DETAILS. AND BIG TECH’S A.I. AMBITIONS ARE COMING WITH A... Read More

Key Insights

• Meta, Microsoft, and Google recorded $78 billion in combined capital expenditure during the latest quarter, demonstrating the immense cost of building AI capacity. The central investor concern was whether revenue growth would accelerate enough to justify further increases in infrastructure spending.
• Alphabet’s AI spending received a more favorable market response because its cloud business showed a substantial revenue pickup and Gemini attracted more users. The company raised planned expenditure to $92 billion from $85 billion, while its shares had gained 45% during the year.
• Meta’s shares fell more than 10% after Mark Zuckerberg warned investors to prepare for a notable spending increase in the following year. Although Meta reported record revenue and 26% growth, investors wanted greater clarity about how aggressive AI investment would translate into revenue during 2026.
• Microsoft’s Azure business grew 39% and exceeded market expectations, but its shares still declined by about 2.5%. Investors focused on the absence of faster cloud acceleration despite additional AI spending, while finance chief Amy Hood maintained that insufficient supply, rather than weak demand, limited growth.
• AI infrastructure demand was described as exceeding Microsoft’s available capacity, forcing the company to rent computing resources from newer cloud providers. A technology analyst said Microsoft was sold out through the end of its next fiscal year, suggesting that the investment cycle had not yet reached its peak.
• Meta’s planned $25 billion bond sale showed how technology companies were finding additional ways to finance data-center construction. The company had also used off-balance-sheet arrangements and was building a large Louisiana data center, reinforcing concerns about debt and the scale of future expenditure.
• The AI investment cycle can display bubble characteristics even while current business conditions remain healthy. The technology analyst expected supply eventually to exceed demand and produce a correction, but argued that Microsoft could continue increasing capital expenditure while its cash costs did not outgrow revenue.
• The Trump-Xi meeting reduced near-term trade tensions through tariff relief, delayed Chinese rare-earth export restrictions, resumed soybean purchases, and paused selected United States restrictions and port fees. Bloomberg analysts viewed the agreement as buying time rather than resolving the countries’ fundamental long-term competition.

Questions & Answers

Q: Why are Big Tech companies spending so much on AI?

Meta, Microsoft, and Google are investing heavily to expand the computing capacity required for AI products and cloud services. Together, they recorded $78 billion in capital expenditure during the latest quarter, while Microsoft said inadequate supply, not weak demand, was constraining its growth.

Q: How much did Meta, Microsoft, and Google spend on AI infrastructure?

Meta, Microsoft, and Google recorded $78 billion in combined capital expenditure during the latest quarter discussed. Alphabet separately raised its expenditure plan from $85 billion to $92 billion as it reported stronger cloud growth and Gemini adoption.

Q: Why did Alphabet rise while Meta and Microsoft fell?

Alphabet rose because its cloud revenue and Gemini user adoption showed investors clearer evidence that its spending was producing results. Meta and Microsoft also reported strong performance, but their growing investment plans were not accompanied by equally convincing acceleration in future revenue.

Q: Why did Meta shares fall more than 10%?

Meta fell more than 10% after Mark Zuckerberg warned investors to prepare for a notable increase in spending the following year. Although Meta reported record revenue and 26% growth, investors wanted more clarity about its revenue outlook into 2026.

Q: Is Microsoft facing weak demand for AI services?

Microsoft management said demand was not the problem and identified limited supply as the constraint. Azure grew 39% and exceeded expectations, while a technology analyst said Microsoft’s capacity was sold out through the end of its next fiscal year.

Q: Why did Microsoft shares fall despite 39% Azure growth?

Microsoft shares declined by about 2.5% because investors did not see faster cloud-revenue acceleration proportional to its increasing AI expenditure. Management maintained that insufficient computing capacity, rather than weak demand, was limiting growth.

Q: How is Meta financing its AI expansion?

Meta planned a $25 billion bond sale and had also used off-balance-sheet arrangements to support its expansion. Its construction of a large Louisiana data center further demonstrated the scale and financing demands of its AI infrastructure plans.

Q: Is the AI infrastructure market in a bubble?

A technology analyst said the investment cycle could show bubble characteristics because supply would eventually exceed demand and cause a correction. However, the analyst argued that the peak had not arrived because Microsoft remained capacity constrained and sold out through the end of its next fiscal year.

Summary & Key Takeaways

• Meta, Microsoft, and Google recorded $78 billion in combined quarterly capital expenditure as they expanded AI infrastructure. Investors treated the companies differently: Alphabet rose because cloud revenue and Gemini usage accelerated, while Meta and Microsoft declined because their growing investment plans were not matched by equally convincing evidence of faster future revenue growth.

• Microsoft reported 39% Azure growth that exceeded market expectations, yet its shares still fell as investors questioned whether rising AI expenditure was generating proportional acceleration. Management argued that supply, not demand, was the constraint. A technology analyst added that Microsoft’s capacity was sold out through the end of its next fiscal year.

• The broadcast also covered easing tensions between the United States and China, reduced expectations for another near-term Federal Reserve rate cut, and the European Central Bank’s decision to hold rates. The trade agreement rolled back parts of the recent escalation, but Bloomberg analysts said fundamental competition between the two countries remained unresolved.