AI build-out hits snag as Google and Microsoft put off raising capex forecasts

Sundar Pichai, CEO, Google and Satya Nadella, CEO of Microsoft.

Denis Balibouse | Ruben Sprich | Reuters

The past few quarters of hyperscaler earnings have been marked by ever-increasing capital expenditure forecasts as tech giants race to build out artificial intelligence infrastructure to meet what they describe as insatiable demand.

At least for the moment, Microsoft and Alphabet are telling a slightly different story.

In their earnings reports Wednesday, both companies shared capex figures that came up shy of analysts' estimates. Microsoft reduced its capex forecast for the year to $170 billion from $175 billion, and Alphabet held its guidance at $195 billion to $205 billion.

The numbers suggest a slowdown is nowhere in sight, but they do represent another potential point of concern for the AI build-out. Shares of neoclouds CoreWeave, Nebius and IREN all dropped after the reports, as did Oracle, which is one of the biggest spenders on AI infrastructure.

Microsoft CFO Amy Hood said on the software company's earnings call that third-party providers of graphics processing units had delays that will push out some available capacity until the first half of 2027. She didn't provide names, but Microsoft relies on CoreWeave, IREN and Nebius, among others.

Anat Ashkenazi, Alphabet's finance chief, told analysts that outside computing power "came online only at the very end of Q3." Alphabet shares tumbled about 10% in extended trading as the company missed on earnings and revenue and reported negative free cash flow of more than $9 billion.

Plenty of Alphabet shareholders remain faithful.

"We are pleased with what we see and what we heard, and trust management's approach to their AI spending," Chris Ballard, managing director of Check Capital Management, wrote in an email to CNBC.

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None of that is to suggest the AI build-out is over, or even close to plateauing.

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