US tech giants' $750 billion AI investment faces challenges as core business growth slows

US Tech Giants' $750 Billion AI Bet Hits Challenges as Core Businesses Slow

IT Home Download the app for exclusive early access October 30, 2026, 10:59:27 From Shandong Updated October 30, 2026, 11:12:21

IT Home, October 30 news: According to Bloomberg, the core businesses on which US tech giants have built their standing — namely the advertising, consumer and retail businesses that underpin this year's combined $750 billion (IT Home note: about 5.01 trillion yuan at current exchange rates) in AI investment — are already showing signs of slowing growth. In some business lines, these legacy businesses are being undercut by the very new technology on which each company has staked everything.

Earlier this week, Google parent Alphabet reported earnings, with advertising revenue from Search and other channels — the segment accounting for roughly half of the company's total revenue — posting its slowest growth in five quarters. Even so, the company kept its capital expenditure forecast for the year unchanged at up to $205 billion (about 1.37 trillion yuan at current exchange rates).

Amazon said on Thursday local time that in the previous quarter, growth in both its core e-commerce business and its advertising business slowed, but the company reiterated that its capital expenditure plan for the year remains at about $220 billion (about 1.47 trillion yuan at current exchange rates). Microsoft and Meta likewise maintained their previous investment guidance, while their final results failed to meet investor expectations.

This series of earnings reports and the subsequent stock declines have exposed the growing contradictions in big tech's transition to new AI products, as well as the pressure brought by the massive investment the transition requires. These companies are issuing debt and selling additional shares on an unprecedented scale, signing tens of billions of dollars in data center procurement agreements, taking on trillions of dollars in forward spending obligations, and rolling out AI infrastructure globally. At the same time, the newly launched products are eroding the profitability of some traditional businesses and diverting users' attention.

Investors' patience is running out. Alphabet's stock posted its largest one-day drop in history on Thursday, wiping out nearly $500 billion (about 3.34 trillion yuan at current exchange rates) in market value. Amazon shares fell 7% in late trading. Meta has fallen 10% cumulatively since its earnings report last week, when the company told investors it would further increase AI investment while warning that its new agentic AI app Muse is extremely compute-intensive.

Dan Morgan, a senior portfolio manager at Synovus Trust, said after Alphabet's earnings came out that the market is "full of questions: how exactly are these investments going to pay off?"

Even Microsoft, with its strong cloud growth and disciplined spending, could not escape this round of selling. Earnings showed that Azure, the cloud unit in the market spotlight, grew revenue 48% year over year to $33.2 billion (about 221.672 billion yuan at current exchange rates) in the quarter ended September, and Microsoft shares initially surged on the news. But by Thursday's close, the stock had given up all its gains and ended down 0.2%.

Amazon's earnings picture was more complicated. The company moved its annual Prime Day from the third quarter last year to the second quarter this year, which is part of the reason for the slowdown. However, analysts had already factored this into their estimates, and the final results still fell short of expectations.

The e-commerce giant's advertising services business grew 11% year over year, the slowest growth since Amazon began separately disclosing the segment's data in 2022. The online stores business grew only 2%, a pace not seen in more than three years, since consumption returned to normal after the pandemic and online shopping demand cooled.

Cloud was also a bright spot for Google. The cloud unit's revenue more than doubled year over year, and operating profit grew more than twofold. The unit's CEO, Thomas Kurian, attended the earnings call for the first time, signaling that the business is becoming increasingly important to Google's future.

But investors were more focused on the problems exposed in Google's search business, which remains the company's lifeblood. With the spread of chatbots like ChatGPT, Google has deeply embedded AI features into its search engine and added a dedicated AI Mode tab to stay competitive. And the popularity of this feature is dragging down the profitability of Google Search.

Google Chief Business Officer Philipp Schindler acknowledged on Wednesday that search queries in AI Mode "monetize at a lower rate," remarks that further weighed on the stock. Schindler said the company is working to add ads to AI Mode and remains optimistic about the product's prospects.

This year, Google has struggled to catch up with startups such as Anthropic and OpenAI in the AI race. Mandeep Singh, an analyst at Bloomberg Intelligence, said that if Google can regain its footing in model development, it will most likely return to the level of returns investors are familiar with.

"In these kinds of transitions, we sometimes focus too much on the cash cow businesses," Singh said. "Cloud margins continue to rise, and I think once both cloud and search are at the industry's forefront, the company's profitability should return to its former levels."

Gene Munster, managing partner at Deepwater Asset Management, said of Google's weak monetization of AI Mode that it is normal for new ad formats to have lower margins initially and then gradually improve. Google's bigger challenge is building AI agents that can make purchases on users' behalf and take a cut of the transaction. Many people in Silicon Valley believe that after the success of Meta's Muse personal assistant, this business model is now ready for prime time.

"The old way was to influence consumer behavior through text links or display ads; the new question becomes how to influence intelligent bots," Munster said.

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