Comments: Hyperscalers earnings – AI tailwinds meet Middle East complications

Nikos Tzabouras, Senior Market Analyst at Jefferies-owned Tradu.com, discusses upcoming tech hyperscalers’ earnings and says ‘AI is going to define any price movements for these top tech firms is tied to the performance of their AI investments. Monetisation of AI tools will be key, especially with the Middle East crisis weighing down on the broader macroeconomic outlook.

Nikos Tzabouras, Senior Market Analyst at Tradu.com, commented:

Hyperscalers

“Renewed AI optimism faces a crucial test as hyperscalers Meta, Alphabet, Amazon and Microsoft report earnings on the same day. Markets appear optimistic that the economic fallout from the Middle East conflict won’t derail AI momentum, and for good reason: the proliferation of AI appears unstoppable, with Agentic AI emerging as a powerful new accelerant.

“Nonetheless, the AI story is no longer straightforward, with investors growing more discerning around winners and laggards. An upbeat narrative may not be enough to satisfy markets, as monetisation proof will likely be required. The Middle East conflict has complicated an already precarious macroeconomic environment. Stagflation fears and tariff uncertainty could weigh on advertising spend, a key revenue source for these tech giants. Should growth falter, markets could quickly sour on the massive capital expenditures these companies continue to allocate toward AI infrastructure.”

Alphabet

“Alphabet heads into earnings with strong momentum, transitioning from an AI laggard to a frontrunner. The latest Gemini model has been well received, easily accessible on Android and woven into everyday apps like Gmail. Apple’s decision to leverage Gemini to power its Siri overhaul stands as a powerful validation of Alphabet’s AI leadership. Meanwhile, the development of its own custom silicon is bolstering self-reliance, cost efficiency and LLM performance, with direct benefits for a cloud business that is growing at its fastest pace in years.

“Nonetheless, this aggressive pivot is not without risks. AI proliferation threatens to cannibalise search dominance and affect click-through rates. At the same time, Meta’s advances in the advertising market pose a genuine competitive threat amid mounting macro headwinds. With expectations running high, strong results alone may not be enough to satisfy markets – guidance will be the real test.”

Meta

“Meta arrives at earnings having done something most peers are still struggling to prove: it has demonstrated tangible returns on its massive AI investments. Its AI tools have materially boosted the advertising business, with ad impressions accelerating 18% y/y in Q4 and its Generative Ads Recommendation Model driving a 3.5% lift in ad clicks on Facebook. An acceleration in revenue growth driven by its AI initiatives could keep markets calm around the company’s substantially higher spending targets.

“However, Meta is uniquely exposed to macro adversities and risks to marketing budgets, since it derives the vast majority of its revenues from advertising. Moreover, it faces a nuanced execution risk as the push to embed AI into its platform feed could eventually degrade the user experience. Meanwhile, Meta AI has failed to spark the excitement of rivals like ChatGPT and Gemini, leaving a question mark over its consumer AI ambitions.”

Microsoft

“Microsoft is under the most pressure of the four to demonstrate a tangible return on its AI investments, which are on track to nearly double in FY26. Its Copilot suite struggles to establish itself as a must-have utility, with an implied 3.3% penetration rate across its M365 user base being uninspiring. Management guides for Azure growth to slow to 37-38% y/y and operating margins to contract slightly, underscoring the challenges. Unless Microsoft exceeds these forecasts, markets could react negatively once again.

“However, Microsoft’s entrenched position across corporate productivity, cloud and cybersecurity gives it a structural resilience that its more specialised rivals cannot easily replicate. The ubiquity of Teams and M365 creates a natural pipeline for Azure adoption, and its reach across mission-critical sectors offers a meaningful buffer against the macro headwinds that could trip up its peers.”

Amazon

“Amazon is really going to have to deliver to shake market worries over its plans to boost capex by over 50% this year, but its not an easy task. A challenging external environment of tariffs and higher energy prices adds to the pressure, with ad sales at risk of further decelaration, e-commerce facing headwinds and costs rising. Its own guidance creates scope for another disappointment, pointing to a potential revenue slowdown and operating income that could even contract.

“Yet the structural bull case remains compelling. Demand for AI workloads and cloud services is surging and Amazon is cementing AWS as the backbone of the AI era through custom silicon development and landmark infrastructure commitments from the likes of Anthropic and OpenAI. Meanwhile, its advertising business is emerging as a formidable growth engine, powered by AI-driven optimisation, unrivalled first-party e-commerce data and the expanding reach of Prime Video commercials.”