Market consensus anticipates that the combined capital expenditures of Alphabet, Microsoft, Amazon, and Meta will reach $600 billion by 2026. Goldman Sachs explicitly stated that if capital expenditure remains stagnant, it would essentially indicate a slowdown. Against the backdrop of historically high market positioning, an individual company’s better-than-expected performance may boost sector sentiment, but any underperformance could also trigger a chain reaction. The key question is whether positive surprises can be shared or if negative shocks might spread.
How long can the AI-driven tech stock rally last? The answer may come as early as tonight.
On April 29, Alphabet, $Microsoft (MSFT.US)$ 、 $Amazon (AMZN.US)$ 、 $Meta Platforms (META.US)$ will collectively release their Q1 earnings reports, $Apple (AAPL.US)$ with another following on Thursday to disclose its results. These four companies together account for 18% of the S&P 500’s market capitalization, and their capital expenditure guidance is considered a key indicator of investment trends in AI computing power.
Ahead of the earnings releases, market optimism about AI capital expenditures has already been tested. According to The Wall Street Journal, OpenAI’s revenue and user growth both fell short of targets, raising doubts about whether the company can fulfill its commitment to invest up to $1.5 trillion in computing power. This news put the brakes on enthusiasm for AI capital spending, pressuring U.S. tech stocks overnight, with the Nasdaq Tech Index falling more than 1.3%.
Against this backdrop, Wall Street’s focus has shifted beyond short-term profit statements. The core questions are: how much longer can the expansion of capital expenditures continue, and to what extent can revenue growth translate into profits?
After $600 billion in capital expenditures: The AI narrative stands at a crossroads.
Market consensus predicts that Amazon, Microsoft, Meta, and Alphabet will collectively spend $600 billion on capital expenditures by 2026, rising further to over $800 billion by 2027. According to Goldman Sachs estimates, by then nearly all free cash flow of the 'Mag 7' will be consumed by capital expenditures, with companies like Meta potentially no longer generating positive cash flow.
Goldman Sachs’ Head of Trading, Rich Privorotsky, made an ironic observation: in an industry widely believed to have a shortage of computing power, what is actually distorted is demand. He referred to this phenomenon as “token maximization,” where engineering teams compete to consume as much computing power as possible because insufficient spending is seen as a career risk. This distorted incentive mechanism has driven a significant amount of inefficient capital spending.
Privorotsky also pointed out a structural contradiction: semiconductor stocks are direct beneficiaries of rising capital expenditures, so they are happy to see continued increases in spending. However, for shareholders of hyperscale cloud providers (Amazon, Microsoft, Google, Meta), the rise in capital expenditures over recent quarters has not been rewarded by the market, as the return on AI investments remains difficult to quantify. “Last week, we heard from suppliers, but the narrative from hyperscale spenders is far murkier.”
In his view, the real critical question is not whether demand is strong, but whether capital expenditures can continue to grow. “If capital expenditures stop growing, that becomes a problem for the entire narrative. In the context of rising input costs, stagnant capital expenditures essentially represent a slowdown.”
With crowded positioning, what should investors look for in the earnings reports of the five giants?
From a technical perspective, large-cap technology stocks have undergone rapid repricing in recent weeks. The RSI indicator of Goldman Sachs' mega-tech basket fell below the oversold line of 30 on March 30 and reached an overbought level of 74 by April 17, completing an extreme shift within just three weeks. Following the rally, the degree of crowded positioning has significantly increased. According to proprietary data from Goldman Sachs, the long-short ratio is at the 88th percentile of its three-year lookback period, marking a historical high.
Amid highly crowded positioning, Wall Street is closely watching earnings signals from tech giants. JPMorgan trader Brian Heavey ranked the companies by the degree of crowded positioning as follows: Amazon, Meta, Alphabet, Apple, and Microsoft. Goldman Sachs’ ranking differs slightly, identifying Alphabet as the most crowded long position.
Amazon (top-ranked position): Rated “Overweight” by JPMorgan with a price target of $280. The market is focused on whether capital expenditure guidance can support AI computing demand and whether AWS revenue growth will continue benefiting from AI workload migration. AWS grew 24% last quarter, and AI services have generated over $15 billion in annualized revenue. Tonight’s results need to hold this line. If growth falls below 20%, it could become one of the turning points for sentiment throughout the earnings season.
Meta (second-ranked position): Rated “Overweight” by JPMorgan with a price target of $825. Goldman Sachs estimates that based on the current trajectory of capital expenditures, Meta will no longer generate positive free cash flow. The market is concerned about the pressure of capital expenditures on free cash flow and the impact of AI recommendation algorithms on advertising revenue. Meta’s annual capital expenditure plan of $135 billion requires Zuckerberg to provide explanations every quarter. Any language indicating “ongoing evaluation” will be interpreted by the market as a loosening signal. In past quarters, any hesitation has led to unfavorable after-hours reactions.
Alphabet (third-ranked position, deemed most crowded by Goldman Sachs): Rated “Overweight” by JPMorgan with a price target of $395. The market is focused on whether search ads are impacted by AI chat tools and the extent to which the cloud business benefits from AI computing demand. Google Cloud is expected to grow at 49.6%, but Gemini commercialization has yet to provide clear financial figures. If Cloud revenue exceeds expectations but monetization signals remain vague, the market reaction may be cooler than anticipated.
Apple (fourth-ranked position): Price target set at $325. The market is focused on its response to rising memory costs and the impact of leadership changes. iPhone revenue for the second quarter of fiscal year 2026 grew 27% year-over-year to $59.5 billion, with a gross margin of 48.5%. Third-quarter guidance projects iPhone sales of $50.1 billion, with a gross margin of 47.6%. Investors are more concerned with gross margin resilience.
Microsoft (fifth-ranked position, least crowded): Rated “Overweight” by JPMorgan with a price target of $550. Privorotsky noted that Microsoft is likely to make statements regarding fiscal year 2027 capital expenditures, providing crucial reference for the market to assess mid-to-long-term investments among hyperscale cloud providers. Additionally, the market is focused on Azure cloud business growth rates and AI service contributions to revenue. The consensus Azure growth rate is approximately 38%, but what the market truly wants to see is whether Copilot enterprise solutions can contribute quantifiable income. Guidance below 36% for Q2 would be a negative signal, while exceeding 40% would be considered a positive surprise.
Another suspense surrounding tech giants releasing earnings on the same day is whether surprises will be shared or if shocks will spread. The AI narrative stands at a crossroads, awaiting tonight's direction.
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