Tech Companies Show They Won't Back Down on AI Spending. There Are Still Some On Wall Street Who Are Wary

Despite a broader market sell-off this year driven by growing recession fears, major tech companies are continuing to ramp up spending on artificial intelligence, even as some on Wall Street worry that the returns on those investments have yet to justify the costs. Critics caution that if the economy tips into a recession, companies might be forced to reduce their AI spending — a development that could directly impact chipmakers like Nvidia Corp. and other hardware suppliers that have benefitted from the current AI spending surge.

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However, so far, Big Tech shows no sign of easing up. Capital expenditures among U.S. hyperscale cloud providers soared by 71% in the first quarter, totaling around $81 billion, according to analysts at Evercore ISI. That aggressive spending has been led by Alphabet Inc., Microsoft Corp., Meta Platforms Inc., and Amazon.com Inc., all of which are investing heavily in AI infrastructure.

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Both Alphabet and Microsoft reaffirmed their capital investment projections during the most recent earnings season. Meta even increased its capex forecast. Although Amazon didn’t provide an updated forecast this week, it disclosed spending $24.3 billion in the first quarter, primarily to meet the growing demand for AI services. Back in February, Amazon had projected it was on track to spend about $100 billion for the full year.

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Altogether, Meta, Amazon, Alphabet, and Microsoft are expected to spend more than $300 billion this year to build out AI-related data centers and supporting infrastructure. The market seems relatively comfortable with these projections, based on the positive stock responses to earnings announcements.

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Some analysts believe that even if the economy slows and companies need to trim budgets elsewhere, AI will likely remain a top priority. Crawford Del Prete, president of market-research firm IDC, noted that while some IT executives are pausing or delaying broader spending decisions due to economic uncertainty — such as concerns around tariffs — they are not cutting back on AI investments.

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IDC recently cut its forecast for overall IT spending growth from about 9% to between 4% and 5% for the year. But Del Prete emphasized that AI-related initiatives are being prioritized over other technology projects, which are now on hold.

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“The biggest stall I’ve seen is with new projects that would change how companies operate,” Del Prete explained. “But they aren’t halting everything — just delaying. If AI projects were stopped, the ripple effects would be significant.”

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Raymond James analyst Srini Pajjuri echoed this sentiment, stating in a recent client note that even if new tariffs reduce overall hardware demand, spending related to AI is likely to remain strong due to long lead times and intense competition among cloud giants.

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Leading up to recent earnings reports, there had been concerns from investors over whether companies like Amazon and Microsoft were scaling back their data center expansion plans. Reports suggested they were delaying early-stage projects, prompting questions about whether the AI buildout was slowing. However, both companies used LinkedIn to reaffirm their long-term investment commitments.

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Microsoft CEO Satya Nadella addressed the issue directly on his company’s earnings call, stating that adjustments to construction and leasing timelines are a normal part of business operations and have been for over a decade.

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He emphasized that Microsoft carefully considers power requirements, geographic distribution, and anticipated workloads in its planning. Despite its increased investment, Microsoft still doesn’t expect to have enough capacity to meet the high demand for AI cloud services in the current quarter.

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Evercore ISI analyst Amit Daryanani commented that the uptick in capital expenditure forecasts from major tech firms should help ease fears of a slowdown in data center expansion.

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Nonetheless, not everyone is convinced that the current pace of spending is sustainable. Some investors and analysts worry that certain companies may be going too far. For example, Google and Meta’s aggressive capex plans could backfire if economic conditions deteriorate. Gil Luria, an analyst at D.A. Davidson, warned that if these companies continue pouring money into AI without meaningful returns, they could test investors’ patience.

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Adding to this cautious view, Jay Goldberg of Seaport Research Partners recently initiated coverage on Nvidia with a rare “sell” rating — the only one on Wall Street. He cited growing scrutiny over AI budgets among enterprise customers, who are now seeking more tangible and cost-effective AI applications.

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Goldberg pointed out that many current uses of AI only offer modest cost savings of 10% to 20% in limited scenarios, and that this reflects a steep and potentially risky adoption curve.

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In sum, while AI spending shows no signs of slowing down among the biggest tech players, questions remain about how sustainable these investments are if macroeconomic conditions worsen. Companies may be betting that staying ahead in AI is worth the risk — but the payoff still needs to catch up with the hype.

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