SAN FRANCISCO, California: Alphabet's escalating spending on artificial intelligence has heightened investor concerns about whether the biggest U.S. technology companies can sustain their massive AI investments, with rivals Microsoft, Meta Platforms and Amazon now facing increased scrutiny ahead of next week's earnings reports.

The Google parent reported its first-ever quarterly cash burn, using US$5.9 billion in the second quarter despite its Google Cloud business posting a record 82 percent growth as demand for AI computing surged. Alphabet also expects to spend an additional $15 billion in 2026 and signaled another increase next year, pointing to even higher costs ahead.

The results underscore how the AI race is reshaping the finances of the world's largest technology companies. Once known for generating vast amounts of cash to fund expansion, many are now increasingly relying on debt and share sales as industry-wide AI spending is expected to exceed $700 billion this year.

Alphabet's shares fell about six percent in early trading on July 23, while Meta and Amazon dropped roughly 3.5 percent. Microsoft traded little changed.

Investors are concerned that other tech giants could follow Alphabet by raising spending forecasts even as returns from AI investments continue to trail the pace of capital outlays.

"The risk is tilted towards further increases, particularly while Microsoft and others remain capacity-constrained," Charu Chanana, chief investment strategist at Saxo Markets, said.

"But investors will increasingly focus on how much of that cash must be reinvested simply to remain competitive and whether AI revenue can grow faster than capital expenditure, depreciation and operating costs."

Analysts expect Alphabet and Amazon to burn cash in 2026, while Meta's cash flow is projected to shrink 95.7 percent to $1.85 billion. Microsoft's cash generation for its current fiscal year is expected to total $25.39 billion, less than half the estimated $58.74 billion recorded in the previous financial year.

Pressure is also mounting on Amazon and Microsoft from Google's rapidly expanding cloud business, which has been growing faster than its larger rivals in recent quarters. Alphabet executives said strong demand has prompted plans to rent additional data center capacity from other companies, even though doing so will weigh on margins.

"Google Cloud was an absolute blowout," said Richard Clode, Portfolio Manager of Janus Henderson Investors' Global Technology Leaders. "Alphabet has a competitive advantage running all the way through the stack from their own custom AI chips through to distribution to billions of users."

Competition is expected to intensify further as Meta holds talks to rent computing power to Anthropic, adding to a growing market that already includes AI cloud providers such as CoreWeave.

"As compute becomes more available and models become cheaper, cloud capacity may look increasingly interchangeable. That could force providers to spend more while accepting lower returns," said Lale Akoner, global market strategist at eToro.