Cloud giants cut AI spending forecasts, weighing on infrastructure rivals

Investors in artificial intelligence infrastructure faced a sharper reality check Wednesday as Microsoft and Alphabet revealed capital expenditure figures that lagged analyst expectations. The mixed signals from these two tech giants sent immediate pressure on the shares of companies dedicated to selling computing power, a sector often referred to as neoclouds.

Microsoft reduced its annual spending forecast to $170 billion, down from a previous estimate of $175 billion. Alphabet maintained its guidance between $195 billion and $205 billion, a range that still fell short of what Wall Street had predicted. While these numbers do not indicate a halt to construction, they suggest the rapid pace of expansion may be cooling slightly.

The market reacted swiftly to the news. Shares of CoreWeave, Nebius, and IREN declined following the earnings releases. Oracle, another major purchaser of AI hardware, also saw its stock drop. Alphabet experienced a more severe hit, with shares falling approximately 10% in extended trading after the company reported negative free cash flow exceeding $9 billion and missed earnings targets.

Executives attributed the discrepancy to logistical hurdles rather than a lack of demand. Amy Hood, Microsoft’s finance chief, stated that third-party GPU providers faced delays, pushing available capacity into the first half of 2027. Anat Ashkenazi, Alphabet’s finance chief, noted that outside computing power only became available at the very end of the third quarter. These delays affect firms like Anthropic, which is preparing for an initial public offering and relies on these major clouds for its computing needs.

Financing remains a distinct challenge for these infrastructure providers. Many neoclouds lack investment-grade credit ratings, making it difficult to secure billions of dollars in capital as interest rates rise. Gartner analysts expect 80% of these companies to be absorbed or shut down by 2030. Firmus, an Nvidia-backed firm in Australia, recently withdrew its plans to go public despite having usage commitments from Meta and OpenAI.

Microsoft’s stock was better received because its Azure cloud business grew sales by 48%, beating revenue estimates. Cantor analysts led by Thomas Blakey described the quarter as validation of Microsoft’s growth strategy and raised their one-year price target to $630. Hood indicated that capital spending is expected to accelerate in the first half of 2027 due to higher component costs and delayed deliveries.

Amazon is scheduled to report its earnings after the close on Thursday. Its results will provide the next major data point on how the largest tech firms are managing the costs and logistics of their artificial intelligence infrastructure buildouts.