Tech Trader: Big Takeaways From Big Tech Earnings — Barron's
Dow Jones Newswires ·
By Adam Levine
Another Big Tech earnings season is in the rearview mirror, and like every quarter, themes develop. The five companies ladled on more capital expenditures but still beat Wall Street's numbers. The digital ad business saw no signs of reduced spending from Chinese advertisers, and Alphabet aside, others were still able to increase shareholder cash return, even in light of expanded capex. At least for now, the status quo is still robust.
Big Tech Beats
Alphabet, Amazon.com, Apple, Meta Platforms, and Microsoft all reported second-quarter earnings in the past two weeks, and all five beat Wall Street's consensus estimates for earnings per share and revenue. On average, they exceeded EPS projections by 14% and sales by 4%.
Meta was the standout, with revenue up 22% on the year and EPS up 38%, both well ahead of what the average analyst thought the quarter would look like. The company also beat expectations for its key ad growth metrics: how many ads were shown to users in the quarter, and the average price per ad. Meta shares closed up 11.3% on the day after its earnings release.
Apple had its first solid quarter in some time. With revenue growing by nearly 10% year over year, it was its best performance in over three years. iPhone sales were up 13% from 2024 in what was Apple's fiscal third quarter, while Mac sales were up 15% and the high-margin services segment was up 13%.
But at the same time, Apple investors were reminded of the company's exposure to tariffs. The effect has been mild so far, raising Apple's cost of good sold for products by only 1.9% in the quarter. Right now, Apple pays no tariffs on imports from India and Vietnam, and it has shifted to sourcing as much as possible from those two countries. But special tariffs for all the products Apple sells may be coming later in the year, and unprompted, CEO Tim Cook reminded investors of that.
Apple stock was down 1.6% in midday trading on the day after its earnings.
Amazon fared poorly. It also beat estimates for the second quarter, but profitability guidance overshadowed the results. Amazon's third-quarter operating profit outlook came in well below expectations. Magnifying the shortfall, the company's revenue projection was solid, meaning that management must be anticipating elevated expenses in the current quarter. No one elaborated on the earnings call, but separately, CEO Andy Jassy highlighted the uncertainty around tariffs going forwards.
Amazon shares were down 7.7% in midday trading the day after its earnings release.
More Capex, Please
With the notable exception of Apple, the Big Tech companies are engaged in an artificial-intelligence arms race, each building data centers at a blistering rate. All together, the four giants spent $95 billion on capex in the second quarter, and much more than that is in the pipeline.
The companies have been giving annual capex guidance. Microsoft, whose fiscal year ended this quarter, declined to issue a fiscal 2026 projection, but put out a big number — over $30 billion — for the current quarter's investments. That would see expenses rise by 50% on the year, but Chief Financial Officer Amy Hood cautioned that the growth rate would moderate through the fiscal year.
By contrast, Meta isn't slowing down. After raising its 2025 capex guidance last quarter and inching it up this past week, Chief Financial Officer Susan Li said on the earnings call that the company "expects to ramp our investments significantly in 2026." This is exceptional because Meta is the only one from this group that doesn't operate a cloud to rent out these AI servers; it's all for its own use.
Amazon is also proceeding full steam ahead. It used almost every penny of its second-quarter operational cash flows for $31 billion of capex, and guided to around $60 billion for the second half, putting it on pace for a stunning $115 billion for the year. Amazon leads the pack here, but unlike the other AI contenders, its number is inflated by large retail investments for warehouses, vehicles, and robots.
Alphabet isn't slowing down either, raising its 2025 capex guidance considerably. And though Apple spends much less — $3.5 billion in the quarter — that's still 61% higher than last year.
Only Microsoft shows any signs of moderating its spending growth soon, but it also stands out for another reason: $6.5 billion of its $24 billion capex for the quarter came in the form of noncash expenses from financing its leases, which allows it to push out cash expenses for the term of its lease. Its cash capex was a much more modest $17 billion, putting it on par with Alphabet and Meta. Microsoft seems to be the only one of the group making extensive use of so-called finance leases to moderate upfront cash expenses.
Digital Ads Are Fine, Thanks for Asking
Google, Meta, and Amazon all earn digital ad revenue, and there were questions coming into the quarter surrounding how the market would fare. Because of the trade war, Chinese companies targeting U.S. customers cut their ad budgets in the second quarter. For example, ultra-low-cost retailers Shein and Temu ranked as the tenth and 11th biggest U.S. digital advertisers in the U.S. in the second quarter of 2024, and in 2025 they were out of the top 60, according to analytics provider Sensor Tower.
There was no need to worry. All three companies' ad businesses exceeded Wall Street's consensus for the second quarter, up by an average of 18% from the year before.
Keeping the Cash Flowing
One of the fears from all the capex these companies are laying out is that if it turns out to be overinvestment, it would have displaced shareholder cash returns through dividends or buybacks. Indeed, second-quarter free cash flow, the source of those returns, was down on the year for all five, save Microsoft. Of the big spenders, Alphabet was the most affected, with free cash flow down 61% year over year, and cash returns down 11%.
Amazon doesn't have a shareholder cash return program. Apple is nearing a trillion dollars in its program, which began in fiscal 2012, and it will likely cross that mark by the end of 2025.
Write to Adam Levine at [email protected]
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