3 Key Things to Monitor When Tech Giants Report Earnings

The artificial intelligence (AI) investing thesis has been tough during the past month, but a bundle of tech earnings can change sentiment. Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), Microsoft (NASDAQ: MSFT), and Amazon (NASDAQ: AMZN) are some of the tech giants slated to report earnings by the end of the month, and these are the key details every investor should monitor.

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AI capital expenditures

If hyperscalers say that they will continue to ramp up spending, it gives chipmakers, neoclouds, and other companies at the center of the AI trade full permission to rebound.

Elon Musk offered some good news when SpaceX (NASDAQ: SPCX) reported earnings earlier this month. He told investors that hyperscalers and AI enterprises have been relentlessly "hound[ing]" SpaceX for more compute. Even SpaceX is struggling to find compute, with Musk expecting the superintelligence computing capacity shortage to last for years.

That backdrop suggests hyperscalers will spend more than expected and project even higher AI capital expenditures into the fourth quarter and beyond.

That would be good news, but it's equally important to assess how each company will fund its capital expenditures. Microsoft already told investors it would achieve positive free cash flow in its fiscal 2027, suggesting that the AI build-out is sustainable.

Revenue growth rates

All this spending has to translate into positive returns to justify the huge cost of the AI build-out. That's why investors should closely look at year-over-year growth rates for the tech giants. It's already clear that chipmakers are still doing well. Micron (NASDAQ: MU) posted 379% year-over-year revenue growth in its fiscal Q4 2026 as demand for its memory chips continues to soar.

However, all those chips have to translate into meaningful revenue growth rates for hyperscalers to justify the increased capital expenditures. Alphabet's cloud revenue, specifically, will be on my radar. That part of the business has been accelerating a lot lately, including an 82% year-over-year growth rate in the second quarter. The more Google Cloud's revenue growth rate accelerates in the third quarter, the better it is for the AI trade.

Profitability also matters, but there are two reasons I am not looking at net income as much. First, it's normal for tech innovations to be unprofitable for multiple years before enjoying dramatic profit margin expansion upon profitability. Google Cloud is a great example, since it was unprofitable for more than a decade.

Second, net income has been murky for some tech giants due to their large investments in SpaceX and Anthropic. Returns from those investments influence net income, but don't indicate how well the underlying businesses are actually doing. For this earnings cycle, operating income is a more reliable metric than net income, because the former isn't affected by large investments that are performing well for now.

Forward guidance

Chipmakers have offered forward guidance that implies demand will continue. The projections from tech giants will suggest how they feel about current AI expenditures, and whether it is translating into higher growth rates.

Commentary from tech leaders will also reveal where they see AI heading. For instance, Amazon Chief Executive Officer Andy Jassy told investors that Amazon Web Services was booming in Q2, and that "there's a lot to be excited about."

One of the downsides was that Amazon reported a cash outflow of $7.6 billion for the trailing 12 months, mainly due to AI investments. That's a big drop from the $18.2 billion in positive free cash flow for the trailing 12 months ended June 30, 2025.

Any hints at positive free cash flow, like the one Microsoft provided at the conclusion of its fiscal 2026, will bode well for AI stocks.

It's no secret that many people are using AI models, and various businesses have enhanced their products and services thanks to AI. Wall Street's biggest concern is the financial viability of it all, and encouraging management projections may be what investors need to start another stock market rally.

Marc Guberti has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Micron Technology, and Microsoft. The Motley Fool has a disclosure policy.