AI in action · Markets

The AI Trade's $800 Billion Week: Alphabet, Microsoft and Amazon Report With Options Pricing Moves That Last Quarter Proved Too Small

Hyperscaler capital spending is expected to reach about $800 billion this year, and Alphabet, Microsoft and Amazon report on Wednesday and Thursday, around the Fed decision. "The market's just not giving the benefit of the doubt to companies," Alpine Macro's Nick Giorgi told Reuters. In July, Microsoft and Amazon moved about 1.85 times what options had priced, a Saxo review found.

Oct 25, 2026

The week that decides how the market feels about artificial intelligence for the rest of the year begins with a number that is no longer controversial and a reaction that is. Spending by the hyperscalers, the largest cloud companies, is expected to reach about $800 billion this year, Reuters reported in its week-ahead preview on October 23, 2026. Alphabet and Microsoft report after the close on Wednesday, October 28, a few hours after the Federal Reserve's decision, and Amazon follows on Thursday. Consensus estimates compiled by Nasdaq are $2.94 a share for Alphabet, $4.71 for Microsoft and $2.01 for Amazon, but the line investors will read first is the one about capital expenditure.

The mood going in is set by the reports that came before. Meta raised the floor of its 2026 capital budget to $135 billion and posted its first negative free-cash-flow quarter since 2012, and its shares fell almost 7% the next day; Lam Research beat and fell; IBM's chief executive said some corporate AI spending was "completely out of control." "The market's just not giving the benefit of the doubt to companies," said Nick Giorgi, chief equity strategist at Alpine Macro. "Earnings are critical to the overall confidence level of the AI trade," said Kevin Mahn of Hennion & Walsh. The Nasdaq Composite fell 0.71% last week while the Russell 2000 of smaller companies rose about 2%.

The options market's record on these companies argues for caution about the size of the reaction. In a review of the July reports, Saxo's options strategist Koen Hoorelbeke found that Microsoft had been priced for a move of 8.40% and moved 15.51%, and Amazon was priced for 8.16% and moved 15.32%, both about 1.85 to 1.88 times the implied move. Alphabet, priced for 6.71%, moved 7.13%, close to its implied range, and Meta stayed inside it. His conclusion was that the implied move "tells you what an event costs, not what it turns out to be worth," and that it is better used as a hurdle a view must clear than as a forecast.

Three things will decide the reaction, and only one of them is in the income statement. The first is the capex guide for 2027, which none of the three has given and which every chip and power stock will trade on Thursday morning. The second is cloud growth, the evidence that the spending is being rented out: Azure, Google Cloud and AWS growth rates are the revenue on the other side of the $800 billion. The third is how it is paid for. S&P Global said on October 19 that hyperscalers probably carry more AI-linked obligations than they disclose, and the market spent last week punishing the companies whose cash flow could not cover their plans.

None of this says which way the shares will move. It says the bar is set differently from the usual earnings week: beating estimates is assumed, and the judgement will be about whether the spending is still earning its keep. Last quarter, two of the three moved almost twice as far as the options market expected. That is the more useful number to carry into Wednesday night than any of the estimates.

Sources: Reuters via The Globe and Mail — Wall Street week ahead: Earnings flood, Fed meeting pose pivotal tests for rickety AI market rally (Oct 23, 2026); Saxo (Koen Hoorelbeke) — Nine prints later: what Q2 earnings season taught us (Aug 2026); StockTitan — Microsoft, Alphabet and Amazon lead the earnings week of October 26 (Nasdaq consensus, Oct 23, 2026)