American tech giants are set to release their earnings reports this week, and the market faces a key question: Is the AI boom brewing the next bubble?
According to media reports on Monday, despite Microsoft, Alphabet, Amazon, and Meta expected to report strong revenue growth in the third quarter, these companies and other major cloud service providers are projected to invest $400 billion in AI infrastructure this year, with the return on investment still uncertain.
A widely cited MIT study shows that among over 300 analyzed AI projects, only about 5% achieved measurable benefits. Most AI projects remain in the pilot stage due to difficulties in integrating into workflows and scaling models. This casts a shadow over the AI boom that has added approximately $6 trillion in market value to tech giants since the launch of ChatGPT in November 2022.
Business leaders, including OpenAI CEO Sam Altman, Amazon founder Jeff Bezos, and Goldman Sachs CEO David Solomon, have warned in recent months that the frenzy in tech stocks has outstripped fundamentals. Investors are beginning to adopt strategies reminiscent of the internet bubble era to mitigate the risks of an AI bubble.
<h2>Circular Trading Raises Systemic Risk Concerns</h2>
A series of circular trades reminiscent of the 1990s internet bubble has heightened market unease. According to a previous article by Wall Street Insight, Nvidia may invest $100 billion in one of its largest clients, OpenAI. OpenAI has signed a $1 trillion AI computing power deal but has revealed little about how it will finance this, including a commitment to purchase $300 billion worth of computing power from Oracle.
Debt financing is playing an increasingly important role in large tech companies' AI infrastructure investments, which differs from past investment cycles. Meta recently signed a $27 billion financing agreement with private credit firm Blue Owl Capital to build its largest data center.
Ahmed Banafa, a professor of engineering at San Jose State University, stated:
<blockquote>
When the same group of companies finances and relies on each other, decisions may no longer be based on real needs or performance, but rather to reinforce growth expectations. These transactions themselves may not be problematic, but when they become the norm, they increase systemic risk.
</blockquote>
<h2>Strong Growth in Cloud Business but Profit Pressure</h2>
Despite bubble concerns, Amazon, Microsoft, and Google's cloud computing divisions are still expected to report strong growth in the third quarter, although capacity constraints limit their ability to meet AI demand. Visible Alpha data indicates that Microsoft Azure revenue may grow by 38.4%, surpassing Google's cloud at 30.1% and Amazon Web Services at 18%.
AWS remains the largest player but is lagging behind Microsoft, which benefits from its partnership with OpenAI, and Google, which has gained recognition for its models among startups. Recent service outages at AWS have affected several popular applications, prompting renewed scrutiny
According to LSEG data, Microsoft is expected to see a revenue growth of 14.9% in the third quarter, while Alphabet is expected to grow by 13.2%, and Amazon and Meta are expected to grow by 11.9% and 21.7%, respectively. However, with soaring costs, the profit growth of these companies is expected to slow down, with all companies except Microsoft anticipated to record the weakest profit growth in ten quarters.
<h2>Some investors bet on increased application rates</h2>
Despite facing skepticism, some investors believe that real value is emerging beneath the bubble. They point out that double-digit revenue growth and strong cash flow are maintaining the health of the tech giants' balance sheets.
Eric Schiffer, CEO of Los Angeles investment firm Patriarch Organization, which holds shares in all &#34;seven giants,&#34; stated:
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Application rates may currently be low, but that is not a forward-looking indicator. As more investment and model innovation occur, application rates will grow. I believe we are not yet at the bubble stage.
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Andrej Karpathy, co-founder of OpenAI and former AI head at Tesla, stated earlier this month, Overall, the models are still immature. I feel the industry is taking too big of a leap, trying to pretend this is impressive, but it is not.
Microsoft, Alphabet, and Meta will announce their earnings on Wednesday, while Amazon will report on Thursday

A widely cited MIT study shows that among more than 300 AI projects, only about 5% achieved measurable benefits. According to LSEG data, Microsoft is expected to see a revenue growth of 14.9% in the third quarter, Alphabet 13.2%, and Amazon and Meta 11.9% and 21.7%, respectively. However, with soaring costs, the profit growth of these companies is expected to slow down, with all companies except Microsoft anticipated to record the weakest profit growth in 10 quarters

- Major U.S. tech companies are reporting earnings, raising concerns about a potential AI bubble despite expected strong revenue growth.  
- A study indicates that only about 5% of over 300 analyzed AI projects have achieved measurable benefits, with many remaining in pilot stages.  
- While cloud services are projected to grow, rising costs may slow profit growth, prompting some investors to bet on increasing application rates amidst skepticism.

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The financial reports of tech giants are approaching, and the return on AI investments remains uncertain