The AI Gamble: CapEx, Cloud, and Earnings Showdown

Hidden Edge Sunday Edition

This week is pivotal on Wall Street, with several major earnings reports expected to shape market sentiment. The focus has shifted dramatically following last week’s surprise announcement from DeepSeek, which sparked renewed interest in CapEx and AI spending trends. Rather than solely emphasizing revenue reacceleration, investors are now closely examining how companies allocate their resources toward AI infrastructure and cloud development. This shift in attention comes on the heels of $MSFT recent CapEx guidance for FY2026, where they projected a deceleration in spending growth — a signal that’s causing ripple effects across the tech sector.

All eyes are now on $GOOGL and $AMZN, two of the largest CapEx spenders driving the current AI cycle. As hyperscalers with extensive cloud platforms, their investment strategies carry significant weight in shaping broader market trends. Last quarter, both $AMZN CEO Andy Jassy and $GOOGL CEO Sundar Pichai were bullish on AI, underscoring aggressive expansion plans with increased spending on infrastructure. The key question this quarter is whether they’ll mirror $MSFT CEO Satya Nadella’s more cautious stance or continue their ambitious investments. Their CapEx guidance will offer critical insights into how confident they are about near-term demand for AI-driven services and cloud growth.

$MSFT’s decision to pull back slightly on long-term CapEx growth suggests a more measured approach to AI infrastructure scaling, likely based on efficiency gains and a reassessment of demand pacing. If $GOOGL and $AMZN follow suit, it could signal the beginning of a broader trend among hyperscalers, potentially impacting suppliers and partners across the AI and semiconductor ecosystems like $NVDA and $AMD. However, if they maintain aggressive spending, it would reinforce the view that AI infrastructure build-outs are still in an early growth phase, with robust demand continuing to outpace expectations.

In addition to the hyperscalers, the software sector is set to deliver critical earnings updates, with companies like $NET $PLTR and $FTNT reporting soon. The software landscape has been particularly volatile, as seen with $NOW’s recent earnings. Despite strong headline numbers, ServiceNow’s miss on cloud revenue growth triggered a sharp market reaction, highlighting investor sensitivity to even minor disappointments. This reaction underscores the pressure on software companies with premium valuations to deliver not just solid growth, but also consistent performance in key metrics like cloud revenue and customer retention.

The interplay between CapEx trends and software performance is becoming increasingly important. As hyperscalers potentially moderate hardware spending, there’s an emerging thesis that more budget will shift toward software and AI-driven applications. This could benefit companies like $MDB, $SNOW, $PLTR, and $GTLB, which are well-positioned to capture enterprise demand for advanced data analytics, AI integration, and cloud-native development tools. The upcoming earnings from software firms will help validate whether this budget reallocation is materializing and which companies stand to gain the most from this shift.

Overall, this week’s earnings reports will provide a critical snapshot of the evolving landscape in tech. Investors will be watching for CapEx guidance changes, AI spending trends, cloud revenue performance, and any shifts in market sentiment driven by these updates. The reactions to these earnings will offer valuable clues about how companies are navigating the balance between aggressive growth investments and financial discipline, setting the tone for the broader market in the months ahead.