AI spending has surpassed European defense! The battlefield where Mag 7 "cannot afford to lose," the outcome seems to be determined?

The arms race in artificial intelligence is escalating at an astonishing pace, and Wall Street is unusually cheering for the massive "burning money" behavior. The preliminary pattern of winners and losers is already beginning to emerge.

Tech giants represented by Meta, Microsoft, Google, and Amazon are expected to spend nearly $400 billion this year on building AI infrastructure, a scale that has surpassed the total defense spending of the European Union last year. These investments are expected to contribute up to 0.5 percentage points to U.S. GDP growth this year and next. Morgan Stanley even predicts that trillions of dollars will flow into the AI infrastructure sector in the coming years.

With their outstanding financial performance, Meta, Microsoft, and Google are becoming the frontrunners in this AI battle. Meta's AI investments have directly translated into increased advertising revenue, causing its stock price to soar; Microsoft has surpassed a market capitalization of $4 trillion through growth in its AI-driven cloud business. Google's massive AI investments are also beginning to show results.

However, some giants are facing severe challenges. Amazon's AWS cloud business is growing slower than its competitors, raising market doubts about its AI strategy; Apple is starting to be viewed by Wall Street as a "laggard," with its conservative investments in AI and internal struggles causing investors to worry about its future innovation capabilities, with some analysts even stating that acquisitions are its only way out.

The pattern of winners and losers in this AI burning money war is beginning to take shape. Perhaps strategic investments in AI have become the key to determining the future fate of tech giants. The market is reassessing the value of these companies and rewarding those that successfully translate AI investments into actual growth with capital, while showing no mercy to those giants that fail to keep pace.

AI Arms Race: The Scale of Burning Money is Beyond Imagination

In the capital markets, high capital expenditures are usually seen as an erosion of profits and can trigger investor concerns. But this time, Wall Street has broken the norm.

Morgan Stanley predicts that from 2025 to 2028, tech giants will spend up to $2.9 trillion on chips, servers, and data center infrastructure. This level of investment intensity has even been boosted by policy support, as the recently passed "Big Beautiful" Act provides tax breaks for companies making upfront investments, further releasing their cash flow.

However, the demand for infrastructure is so immense that companies' own cash flow can no longer cover it. According to Morgan Stanley's estimates, there is a financing gap of up to $1.5 trillion in this AI infrastructure race. Nevertheless, investors seem unconcerned; after Microsoft and Meta announced their massive spending plans, their stock prices hit all-time highs.

Winners: AI-Driven Positive Cycle

In this round of the AI burning money war, some giants have already entered a "positive cycle," where AI investments not only do not erode profits but instead bring stronger growth, thereby supporting further expansion of expenditures.

• Meta:

After the Q2 financial report was released, Meta's stock price surged by 11.3%, increasing its market capitalization by about $200 billion to around $1.75 trillion The company has raised the lower limit of its annual capital expenditure forecast by $2 billion, to a range of $66 billion to $72 billion.

Company executives stated that the current level of investment is just the starting point. Meta hinted that spending could reach $100 billion by 2026. CEO Mark Zuckerberg outlined an ambitious plan to create what he calls AI "personal superintelligence" to enhance the competitiveness of its core business. Zuckerberg stated that building such AI capabilities justifies Meta's high salaries for AI engineers.

Analysts believe that Meta's core advantage lies in the fact that AI has directly created value for its advertising business. Meta stated that AI recommendation models have significantly improved ad conversion rates and increased user engagement on Facebook and Instagram. This virtuous cycle of “AI -> revenue growth -> profit increase -> more AI spending” has led Wall Street to fully endorse its annual capital expenditure plan of up to $72 billion.

• Microsoft:

After the release of Microsoft's Q2 earnings report, its stock price rose by 4%, pushing its market value past $4 trillion, making it the second company to reach this milestone after chip giant Nvidia. Its earnings report showcased impressive "top-down" strength, with gross margins and operating profit margins remaining robust despite a significant increase in capital expenditures.

Microsoft also announced that capital expenditures for the quarter will reach a record $30 billion, as its Azure cloud computing business sales and forecasts exceeded expectations, demonstrating the return on large-scale AI investments. Microsoft also disclosed for the first time that Azure's annual sales exceeded $75 billion, with the number of users for its Copilot AI tool surpassing 100 million.

This stems from the chain reaction brought about by its AI computing leadership, with AI demand driving strong growth in its Azure cloud services and other high-margin products.

• Google:

Alphabet's strong Q2 performance indicates that the company achieved better-than-expected growth while significantly increasing investments. Google also announced a substantial upward revision of its capital expenditure forecast, from $75 billion to $85 billion, equivalent to 22% of expected annual revenue. This level of investment marks the highest annual proportion since 2006.

Google's massive investments are already showing results. For example, AI Overviews, which are algorithm-generated summaries that appear at the top of search results when users ask questions, have not diminished the value of search ads as the market feared On the contrary, Google stated that user query volume increased by 10% in searches featuring AI Overviews, and there was no negative impact on revenue.

Debra Aho Williamson, founder and chief analyst of Sonata Insights, said:

"As companies like Alphabet and Meta compete to deliver on AI promises, capital expenditures are astonishingly high and will remain elevated for the foreseeable future. However, if core businesses remain strong, this will buy them more time with investors and provide confidence that the billions spent on infrastructure, talent, and other technology-related expenses are worthwhile."

Loser: Apple's AI Dilemma

In this fierce money-burning battle, Apple is a "notable exception," widely regarded by Wall Street as having fallen behind.

During the Q2 earnings call, Apple CEO Tim Cook emphasized that AI is "one of the most profound technologies of our time" and that the company will continue to "significantly increase investment" in this area. Apple CFO Kevan Parekh stated that the significant increase in capital expenditures is primarily driven by AI-related investments, with the company adopting a hybrid strategy that invests in first-party data centers while also utilizing third-party infrastructure; investors should expect capital expenditures to rise, but "will not grow exponentially."

The market believes that Apple's investment in AI is far less than that of other giants, putting it at a disadvantage both technologically and strategically. Reports indicate that internally, researchers are struggling to obtain the data needed to train AI models due to overly strict data privacy protections, leading to low morale. Additionally, its slow software update cycle lags far behind competitors. There are also reports that Meta CEO Mark Zuckerberg is leveraging this internal dissatisfaction to lure disgruntled AI engineers from Apple with compensation packages worth hundreds of millions of dollars.

Wedbush analysts even stated that Apple cannot achieve AI innovation on its own, and acquiring Perplexity for $40 billion is the only way out. Previously, it was reported that Apple had negotiated to acquire Perplexity when the company was valued at $14 billion. If Apple indeed acquires Perplexity for $40 billion, it would far exceed its largest acquisition ever—the $3 billion purchase of Beats in 2014—and would become one of the most expensive AI-related acquisitions in the tech industry.

Watcher: Amazon's Challenges

Meanwhile, Amazon finds itself in an awkward position. The Q2 earnings report shows that while it is a significant player in the AI arms race with annual capital expenditures reaching approximately $118 billion, its core business in the AI field—AWS cloud services—faces severe challenges Analysis suggests that although AWS remains a massive business with an annual revenue exceeding $123 billion, its growth rate of 18% is far behind Microsoft's Azure at 34% and Google Cloud at 32%. This has raised strong doubts among investors, who believe that Amazon has fallen behind in the field of generative AI.

After the earnings report was released, Amazon's stock price dropped by 7%. CEO Andy Jassy was forced to defend AWS for 8 minutes during the earnings call. He highlighted the self-developed AI chip Trainium2, claiming it offers "30% to 40% better cost-performance than other GPU suppliers," and presented a suite of AI tools including the programming assistant Kiro and Alexa+ robots, attempting to prove to the market that AWS has the long-term endurance and innovation capability to win the AI marathon.

However, the market is still waiting for Amazon to demonstrate itself with more impressive growth data