Microsoft

Update: AI Revenue May Jump Fivefold to $200 Billion This Year as Spending Race Intensifies

(Updates to add stock prices in 22nd paragraph.)The world's largest artificial intelligence firms could earn $200 billion in revenue this year, more than five times the $37 billion they brought in last year, according to estimates from Menlo Ventures.The venture capital firm has tracked AI revenue growth from Microsoft Corp. (MSFT), Amazon (AMZN), Alphabet's Google (GOOG, GOOGL), OpenAI, Anthropic, Cursor and other companies for the past three years.Revenue, which in 2024 was $11.5 billion, is on track to blow previous years' numbers out of the water, Derek Xiao, a principal at Menlo and co-author of the firm's annual AI research report, said in an interview with."We've always actually had a trend of underestimating how these things grow because it's hard to predict an exponential, but I would put it at $200 billion," he said.While that number is an estimate, growth in AI revenue since January "hockey sticked" and is based on new models of AI now being used, he said."Instead of just this call and response chat pattern that we've seen traditionally, you have background agents that can run for minutes or hours at a time, and that unlocks an order of magnitude more of both things that it can do, but also spend on some of these AI tools," Xiao said.The revenue growth is at the heart of an ongoing debate as company spending has raised fears of an AI bubble. Capital expenditures by Google, Amazon, Microsoft and Meta Platforms Inc. (META) -- collectively known as hyperscalers because they offer massive cloud computing services and global data center infrastructure -- is expected to be around $800 billion this year, with another $1 trillion in 2027, according to the companies and analyst estimates.The investment in new data centers, software and equipment was so large in the first quarter that it accounted for about two-thirds of the growth in US gross domestic product, according to data from the US Bureau of Economic Analysis.While revenue growth has been robust, the capital outlays are still sparking fears that spending has gotten too far ahead of future earnings potential."Most enterprises are yet to generate any returns from their AI spending," James Covello, head of Global Equity Research at Goldman Sachs, said in a note to clients this week."The companies making the models and the hyperscalers building the AI infrastructure are burning through cash and boosting their borrowing. While semiconductor companies are seeing record revenue and profits, the overall dynamic is 'unprecedented and unsustainable,'" Goldman Sachs said in a summary of Covello's report.Covello cited a Massachusetts Institute of Technology study last year that said 95% of AI investment has had no effect on company earnings. While AI tools helped improve individual worker efficiency, "the core barrier to scaling is not infrastructure, regulation, or talent."It is learning," the MIT study said. "Most GenAI systems do not retain feedback, adapt to context, or improve over time."Still, the revenue growth in the AI sector is unlike anything most analysts have seen in other technologies including the advent of the personal computer or the Internet. On the consumer side, AI adoption "has been spectacular," Covello said in his note. He cited a Stanford Institute of Human-Centered AI study that found that 53% of consumers have adopted generative AI tools within three years of the release of ChatGPT."The bull-bear gap on AI is wider than almost anything I've written about," said Philipp Dubach, a strategy consultant and independent researcher who has written widely about AI.He cited reports that showed OpenAI went from $2 billion in annualized run-rate revenue to $24 billion in 24 months and Anthropic growth from $1 billion to $30 billion in 15 months as "unprecedented growth rates." Anthropic declined to comment and OpenAI didn't immediately respond to a request for comment Friday.Yet "the math on capex still doesn't close at any plausible revenue figure I can build up to," he said.Dubach estimates that year-to-date 2026 revenue for AI is about $100 billion shared between Microsoft, Anthropic, OpenAI, Amazon and Google. That figure accounts for double-counting that's common in the industry, he said. Many AI systems are integrated into each other and their services can overlap.The capex spending, however, "is a staggering amount of money chasing returns that haven't fully landed," Dubach said.In the three months through March, Microsoft reported 30% revenue growth in its Intelligent Cloud segment, with sales for its cloud-based computing Azure service up 40%. Google Cloud revenue rose 63% from a year earlier; Amazon Web Services was up 28%.Microsoft and Amazon declined to comment to, while Google didn't respond to a request for comment.Microsoft shares were up 4.3% to $427.16 in late trading, Google was down 1% to $393.23, Meta rose 0.3% to $620.09 and Amazon fell 1.5% to $263.12."The thing is, can these companies grow their revenue fast enough to fund the AI build that's required?" said Bruce Murray, CEO and chief investment officer at the Murray Wealth Group.Murray, who owns all four stocks, said the companies have other business lines to generate the capital to spend on building out their AI infrastructure."It's going to be really difficult to tell who gets over their skis a little too far," he said. As a long-term investor Murray said he has confidence that the AI play will pan out."Meta's maybe the one we'd be the most concerned about, but still, on a relative basis we're still sticking with it," he said. Meta's first-quarter ad revenue rose 33%. The company didn't respond to a request for comment.The Facebook parent "is growing nicely in their advertising business, but it seems to be a bit behind on getting something achievable with AI that's actually going to generate the money," Murray said.One area of AI revenue that has yet to emerge is retail users. A separate Menlo Ventures report from June 2025 found that while 61% of consumers it surveyed had used AI in the past six months, only 3% of users were paying for it. Still, companies including Google and Amazon can earn advertising revenue from those users who aren't yet paying. "My wife uses ChatGPT for everything before she sends it out," but doesn't pay for it, Murray said.As a venture capital firm, Menlo Ventures invests in some of the companies it analyzes such as Anthropic, Wispr Flow, OpenRouter, Numeric and others.Menlo's Xiao said the firm saw very different activity in AI revenue compared with what the MIT report concluded last year."Part of our report was sort of standing in opposition to the MIT report, pointing to the real use cases and the real enterprise dollars that are flowing into the ecosystem and being spent and actually transforming how work is done," Xiao said. "AI looks a lot different from previous waves that we've seen where there has been maybe irrational exuberance."The demand for the tech that's driving the spending may appear "scary," he said."If you contrast that to the build out of the telco boom in the early 2000s, they were laying thousands of miles of fiber that would not be used for years," Xiao said. "There's a difference between this time as opposed to last time, that I think does make it quite exciting, at least from our view. It feels like this time is much more sustainable."Matthew LeisingPrice: $425.98, Change: $+16.55, Percent Change: +4.04%

Dow JonesNasdaq CompositeS&P 500$GOOG$GOOGL$MSFT

Equities Fall, Yields Surge Intraday Amid Inflation Concerns; Oil Jumps

US benchmark equity indexes were lower intraday as Treasury yields jumped amid inflation concerns, while oil prices moved higher on the back of renewed Middle East worries.The Nasdaq Composite and the Dow Jones Industrial Average were down 0.8% each at 26,412.7 and 49,658.24, respectively, after midday Friday. The S&P 500 fell 0.7% to 7,448.3. The Nasdaq and S&P 500 hit fresh record highs in the previous session.Barring energy, all sectors were in the red intraday Friday, led by materials' 2.5% drop.US Treasury yields surged, with the 10-year rate up 13.2 basis points at 4.59% and the two-year rate rising 8.7 basis points to 4.08%."The sustained back-up in long-term yields has finally broken the preternatural serenity in equities, which saw the S&P 500 crack the 7,500 level for the first time on Thursday," BMO said in a report Friday. "A series of increasingly problematic US inflation readings for April was capped by a late-week run-up in oil prices to nearly $105, and aggravated by mounting fiscal concerns in some major economies."Recently, official data showed that US producer prices in April rose at the fastest pace in four years, while annual consumer inflation accelerated to the fastest pace in almost three years.West Texas Intermediate crude was up 4.2% at $105.37 a barrel intraday, while Brent climbed 3.4% to $109.28.US President Donald Trump said he is losing patience with Iran, CNBC reported, citing Trump's interview to Fox News that aired late Thursday. "They should make a deal," he said, according to the report.Trump reportedly concluded his two-day visit to Beijing Friday after holding policy discussions with his Chinese counterpart, Xi Jinping, on trade, tariffs and technology, among other matters. In a pre-recorded interview with Fox News, Trump reportedly said China has agreed to purchase oil from the US.Beijing hasn't confirmed the energy purchases, according to the report.Trump said he is considering lifting sanctions on Chinese firms buying Iranian oil, CNN reported. "I'm going to make a decision over the next few days. We did talk about that," he reportedly said.In company news, Bill Ackman said his Pershing Square hedge fund has established a new position in Microsoft (MSFT), noting that the technology giant's stock "offers analogous and compelling long-term value at today's valuation."The billionaire investor has sold his long-owned investment in Alphabet (GOOG, GOOGL), Reuters reported.Microsoft shares were up 4.4% intraday, the second-biggest gainer on the Dow. Alphabet's class A and C shares fell 0.9% each.In economic news, US industrial production rebounded more than projected in April, buoyed the manufacturing and utilities categories, Federal Reserve data showed."The winners and losers in the latest report are likely to persist over the balance of 2026," Oxford Economics said in a note. "Besides supportive fiscal policy, the (artificial intelligence) buildout will continue to lift production of computers and electronics, while an inventory restocking cycle will support new orders growth for factories."New York manufacturing activity grew at the fastest pace in more than four years this month amid robust new orders, the New York Fed reported.Gold was down 2.6% at $4,564.80 per troy ounce, while silver slid 9.1% to $77.58 per ounce.

Update: AI Revenue May Jump Fivefold to $200 Billion as Spending Race Intensifies

(Updates to show Anthropic declined to comment in the 16th paragraph.)The world's largest artificial intelligence firms could earn $200 billion in revenue this year, more than five times the $37 billion they brought in last year, according to estimates from Menlo Ventures.The venture capital firm has tracked AI revenue growth from Microsoft Corp. (MSFT), Amazon (AMZN), Alphabet's Google (GOOG, GOOGL), OpenAI, Anthropic, Cursor and other companies for the past three years.Revenue, which in 2024 was $11.5 billion, is on track to blow previous years' numbers out of the water, Derek Xiao, a principal at Menlo and co-author of the firm's annual AI research report, said in an interview with."We've always actually had a trend of underestimating how these things grow because it's hard to predict an exponential, but I would put it at $200 billion," he said.While that number is an estimate, growth in AI revenue since January "hockey sticked" and is based on new models of AI now being used, he said."Instead of just this call and response chat pattern that we've seen traditionally, you have background agents that can run for minutes or hours at a time, and that unlocks an order of magnitude more of both things that it can do, but also spend on some of these AI tools," Xiao said.The revenue growth is at the heart of an ongoing debate as company spending has raised fears of an AI bubble. Capital expenditures by Google, Amazon, Microsoft and Meta Platforms Inc. (META) -- collectively known as hyperscalers because they offer massive cloud computing services and global data center infrastructure -- is expected to be around $800 billion this year, with another $1 trillion in 2027, according to the companies and analyst estimates.The investment in new data centers, software and equipment was so large in the first quarter that it accounted for about two-thirds of the growth in US gross domestic product, according to data from the US Bureau of Economic Analysis.While revenue growth has been robust, the capital outlays are still sparking fears that spending has gotten too far ahead of future earnings potential."Most enterprises are yet to generate any returns from their AI spending," James Covello, head of Global Equity Research at Goldman Sachs, said in a note to clients this week."The companies making the models and the hyperscalers building the AI infrastructure are burning through cash and boosting their borrowing. While semiconductor companies are seeing record revenue and profits, the overall dynamic is 'unprecedented and unsustainable,'" Goldman Sachs said in a summary of Covello's report.Covello cited a Massachusetts Institute of Technology study last year that said 95% of AI investment has had no effect on company earnings. While AI tools helped improve individual worker efficiency, "the core barrier to scaling is not infrastructure, regulation, or talent."It is learning," the MIT study said. "Most GenAI systems do not retain feedback, adapt to context, or improve over time."Still, the revenue growth in the AI sector is unlike anything most analysts have seen in other technologies including the advent of the personal computer or the Internet. On the consumer side, AI adoption "has been spectacular," Covello said in his note. He cited a Stanford Institute of Human-Centered AI study that found that 53% of consumers have adopted generative AI tools within three years of the release of ChatGPT."The bull-bear gap on AI is wider than almost anything I've written about," said Philip Dubach, a strategy consultant and independent researcher who has written widely about AI.He cited reports that showed OpenAI went from $2 billion in annualized run-rate revenue to $24 billion in 24 months and Anthropic growth from $1 billion to $30 billion in 15 months as "unprecedented growth rates." Anthropic declined to comment and OpenAI didn't immediately respond to a request for comment Friday.Yet "the math on capex still doesn't close at any plausible revenue figure I can build up to," he said.Dubach estimates that year-to-date 2026 revenue for AI is about $100 billion shared between Microsoft, Anthropic, OpenAI, Amazon and Google. That figure accounts for double-counting that's common in the industry, he said. Many AI systems are integrated into each other and their services can overlap.The capex spending, however, "is a staggering amount of money chasing returns that haven't fully landed," Dubach said.In the three months through March, Microsoft reported 30% revenue growth in its Intelligent Cloud segment, with sales for its cloud-based computing Azure service up 40%. Google Cloud revenue rose 63% from a year earlier; Amazon Web Services was up 28%.Microsoft and Amazon declined to comment to, while Google didn't respond to a request for comment."The thing is, can these companies grow their revenue fast enough to fund the AI build that's required?" said Bruce Murray, CEO and chief investment officer at the Murray Wealth Group.Murray, who owns all four stocks, said the companies have other business lines to generate the capital to spend on building out their AI infrastructure."It's going to be really difficult to tell who gets over their skis a little too far," he said. As a long-term investor Murray said he has confidence that the AI play will pan out."Meta's maybe the one we'd be the most concerned about, but still, on a relative basis we're still sticking with it," he said. Meta's first-quarter ad revenue rose 33%. The company didn't respond to a request for comment.The Facebook parent "is growing nicely in their advertising business, but it seems to be a bit behind on getting something achievable with AI that's actually going to generate the money," Murray said.One area of AI revenue that has yet to emerge is retail users. A separate Menlo Ventures report from June 2025 found that while 61% of consumers it surveyed had used AI in the past six months, only 3% of users were paying for it. Still, companies including Google and Amazon can earn advertising revenue from those users who aren't yet paying. "My wife uses ChatGPT for everything before she sends it out," but doesn't pay for it, Murray said.As a venture capital firm, Menlo Ventures invests in some of the companies it analyzes such as Anthropic, Wispr Flow, OpenRouter, Numeric and others.Menlo's Xiao said the firm saw very different activity in AI revenue compared with what the MIT report concluded last year."Part of our report was sort of standing in opposition to the MIT report, pointing to the real use cases and the real enterprise dollars that are flowing into the ecosystem and being spent and actually transforming how work is done," Xiao said. "AI looks a lot different from previous waves that we've seen where there has been maybe irrational exuberance."The demand for the tech that's driving the spending may appear "scary," he said."If you contrast that to the build out of the telco boom in the early 2000s, they were laying thousands of miles of fiber that would not be used for years," Xiao said. "There's a difference between this time as opposed to last time, that I think does make it quite exciting, at least from our view. It feels like this time is much more sustainable."Matthew LeisingPrice: $426.36, Change: $+16.93, Percent Change: +4.14%

Update: AI Revenue May Jump Fivefold to $200 Billion This Year as Spending Race Intensifies

(Updates to show Anthropic declined to comment in 16th paragraph.)The world's largest artificial intelligence firms could earn $200 billion in revenue this year, more than five times the $37 billion they brought in last year, according to estimates from Menlo Ventures.The venture capital firm has tracked AI revenue growth from Microsoft Corp. (MSFT), Amazon (AMZN), Alphabet's Google (GOOG, GOOGL), OpenAI, Anthropic, Cursor and other companies for the past three years.Revenue, which in 2024 was $11.5 billion, is on track to blow previous years' numbers out of the water, Derek Xiao, a principal at Menlo and co-author of the firm's annual AI research report, said in an interview with."We've always actually had a trend of underestimating how these things grow because it's hard to predict an exponential, but I would put it at $200 billion," he said.While that number is an estimate, growth in AI revenue since January "hockey sticked" and is based on new models of AI now being used, he said."Instead of just this call and response chat pattern that we've seen traditionally, you have background agents that can run for minutes or hours at a time, and that unlocks an order of magnitude more of both things that it can do, but also spend on some of these AI tools," Xiao said.The revenue growth is at the heart of an ongoing debate as company spending has raised fears of an AI bubble. Capital expenditures by Google, Amazon, Microsoft and Meta Platforms Inc. (META) -- collectively known as hyperscalers because they offer massive cloud computing services and global data center infrastructure -- is expected to be around $800 billion this year, with another $1 trillion in 2027, according to the companies and analyst estimates.The investment in new data centers, software and equipment was so large in the first quarter that it accounted for about two-thirds of the growth in US gross domestic product, according to data from the US Bureau of Economic Analysis.While revenue growth has been robust, the capital outlays are still sparking fears that spending has gotten too far ahead of future earnings potential."Most enterprises are yet to generate any returns from their AI spending," James Covello, head of Global Equity Research at Goldman Sachs, said in a note to clients this week."The companies making the models and the hyperscalers building the AI infrastructure are burning through cash and boosting their borrowing. While semiconductor companies are seeing record revenue and profits, the overall dynamic is 'unprecedented and unsustainable,'" Goldman Sachs said in a summary of Covello's report.Covello cited a Massachusetts Institute of Technology study last year that said 95% of AI investment has had no effect on company earnings. While AI tools helped improve individual worker efficiency, "the core barrier to scaling is not infrastructure, regulation, or talent."It is learning," the MIT study said. "Most GenAI systems do not retain feedback, adapt to context, or improve over time."Still, the revenue growth in the AI sector is unlike anything most analysts have seen in other technologies including the advent of the personal computer or the Internet. On the consumer side, AI adoption "has been spectacular," Covello said in his note. He cited a Stanford Institute of Human-Centered AI study that found that 53% of consumers have adopted generative AI tools within three years of the release of ChatGPT."The bull-bear gap on AI is wider than almost anything I've written about," said Philipp Dubach, a strategy consultant and independent researcher who has written widely about AI.He cited reports that showed OpenAI went from $2 billion in annualized run-rate revenue to $24 billion in 24 months and Anthropic growth from $1 billion to $30 billion in 15 months as "unprecedented growth rates." Anthrophic declined to comment and OpenAI didn't immediately respond to a request for comment Friday.Yet "the math on capex still doesn't close at any plausible revenue figure I can build up to," he said.Dubach estimates that year-to-date 2026 revenue for AI is about $100 billion shared between Microsoft, Anthropic, OpenAI, Amazon and Google. That figure accounts for double-counting that's common in the industry, he said. Many AI systems are integrated into each other and their services can overlap.The capex spending, however, "is a staggering amount of money chasing returns that haven't fully landed," Dubach said.In the three months through March, Microsoft reported 30% revenue growth in its Intelligent Cloud segment, with sales for its cloud-based computing Azure service up 40%. Google Cloud revenue rose 63% from a year earlier; Amazon Web Services was up 28%.Microsoft and Amazon declined to comment to, while Google didn't respond to a request for comment."The thing is, can these companies grow their revenue fast enough to fund the AI build that's required?" said Bruce Murray, CEO and chief investment officer at the Murray Wealth Group.Murray, who owns all four stocks, said the companies have other business lines to generate the capital to spend on building out their AI infrastructure."It's going to be really difficult to tell who gets over their skis a little too far," he said. As a long-term investor Murray said he has confidence that the AI play will pan out."Meta's maybe the one we'd be the most concerned about, but still, on a relative basis we're still sticking with it," he said. Meta's first-quarter ad revenue rose 33%. The company didn't respond to a request for comment.The Facebook parent "is growing nicely in their advertising business, but it seems to be a bit behind on getting something achievable with AI that's actually going to generate the money," Murray said.One area of AI revenue that has yet to emerge is retail users. A separate Menlo Ventures report from June 2025 found that while 61% of consumers it surveyed had used AI in the past six months, only 3% of users were paying for it. Still, companies including Google and Amazon can earn advertising revenue from those users who aren't yet paying. "My wife uses ChatGPT for everything before she sends it out," but doesn't pay for it, Murray said.As a venture capital firm, Menlo Ventures invests in some of the companies it analyzes such as Anthropic, Wispr Flow, OpenRouter, Numeric and others.Menlo's Xiao said the firm saw very different activity in AI revenue compared with what the MIT report concluded last year."Part of our report was sort of standing in opposition to the MIT report, pointing to the real use cases and the real enterprise dollars that are flowing into the ecosystem and being spent and actually transforming how work is done," Xiao said. "AI looks a lot different from previous waves that we've seen where there has been maybe irrational exuberance."The demand for the tech that's driving the spending may appear "scary," he said."If you contrast that to the build out of the telco boom in the early 2000s, they were laying thousands of miles of fiber that would not be used for years," Xiao said. "There's a difference between this time as opposed to last time, that I think does make it quite exciting, at least from our view. It feels like this time is much more sustainable."Matthew LeisingPrice: $426.79, Change: $+17.36, Percent Change: +4.24%

$AMD$ASML$GOOGL$INTC$MSFT$NVDA$STM$XRX

Sectors32d ago

Sector Update: Tech Stocks Fall in Afternoon Trading

Tech stocks were lower Friday afternoon, with the State Street Technology Select Sector SPDR ETF (XLK) falling 0.7% and the State Street SPDR S&P Semiconductor ETF (XSD) down 1.6%.The Philadelphia Semiconductor index slumped 2.6%.In sector news, the world's largest AI firms could earn $200 billion in revenue this year, more than five times the $37 billion they brought in last year, according to estimates from Menlo Ventures. The venture capital firm has tracked AI revenue growth from Microsoft (MSFT), Amazon (AMZN), Alphabet's Google (GOOGL), OpenAI, Anthropic, Cursor and other companies for the past three years.In corporate news, Nvidia (NVDA), Advanced Micro Devices (AMD) and Intel (INTC) shares declined in Friday trading, while ASML (ASML) and STMicroelectronics (STM) also fell after a US-China summit ended without major semiconductor agreements, Yahoo Finance reported. The pullback came after talks between President Donald Trump and Chinese President Xi Jinping failed to produce significant developments on semiconductor trade issues, despite investor expectations for progress on advanced chip sales to China, the report said. Nvidia shares fell 2.5%, AMD lost 3.5%, Intel declined 5.3%, ASML dropped 4.2%, and STMicroelectronics slumped 3.8%.Bill Ackman said Friday on the social media platform X that his Pershing Square hedge fund has sold Alphabet (GOOGL) shares and established a new position in Microsoft (MSFT). Alphabet shares were down 1%, and Microsoft climbed 4.3%.Xerox (XRX) shares jumped past 9% after alternative investment fund Starteepo Invest acquired 6.6 million shares of the company, representing a 5.05% stake.

Investor Bill Ackman Says Pershing Hedge Fund Sold Alphabet, Bought Microsoft

Bill Ackman said Friday on the social media platform X that his Pershing Square hedge fund has sold Alphabet (GOOG, GOOGL) shares and established a new position in Microsoft (MSFT).Pershing began buying Microsoft in February after a notable share price decline following its fiscal Q2 results, acquiring a position at a valuation of 21 times forward earnings, in line with the market multiple and well below Microsoft's trading average over the last few years, Ackman said.Ackman said investors underestimate the resilience of the Microsoft 365 franchise given its embedded role across enterprises and highly attractive price-to-value proposition, according to the X post.Concerns regarding the growth trajectory of Microsoft's Azure cloud business are similarly misplaced, especially after the franchise's exceptional recent performance, he added."We believe that $MSFT offers analogous and compelling long-term value at today's valuation," Ackman said on X.Price: $392.13, Change: $-5.04, Percent Change: -1.27%

$GOOG$GOOGL$MSFT

Update: Market Chatter: Microsoft Explores AI Startup Deals as It Broadens Strategy Beyond OpenAI

(Updates with Microsoft's response in the fifth paragraph.)Microsoft (MSFT) is evaluating potential acquisitions of artificial intelligence startups as the company positions itself for a future less dependent on OpenAI, Reuters reported Wednesday, citing unnamed people familiar with the matter.Among the opportunities considered was code-generation startup Cursor, though Microsoft stepped back over concerns about regulatory scrutiny because of its ownership of GitHub Copilot, the report said.Microsoft is also in talks with Inception, a startup focused on an alternative approach to large language models, according to the report.Microsoft's venture arm, M12, participated in Inception's $50 million seed funding round in late 2025. The discussions remain ongoing and may not lead to a transaction, the report said.Microsoft declined to comment when reached by.(Market Chatter news is derived from conversations with market professionals globally. This information is believed to be from reliable sources but may include rumor and speculation. Accuracy is not guaranteed.)Price: $421.80, Change: $+12.37, Percent Change: +3.02%

$MSFT

AI Revenue May Jump Fivefold to $200 Billion as Spending Race Intensifies

The world's largest artificial intelligence firms could earn $200 billion in revenue this year, more than five times the $37 billion they brought in last year, according to estimates from Menlo Ventures.The venture capital firm has tracked AI revenue growth from Microsoft Corp. (MSFT), Amazon (AMZN), Alphabet's Google (GOOG, GOOGL), OpenAI, Anthropic, Cursor and other companies for the past three years.Revenue, which in 2024 was $11.5 billion, is on track to blow previous years' numbers out of the water, Derek Xiao, a principal at Menlo and co-author of the firm's annual AI research report, said in an interview with."We've always actually had a trend of underestimating how these things grow because it's hard to predict an exponential, but I would put it at $200 billion," he said.While that number is an estimate, growth in AI revenue since January "hockey sticked" and is based on new models of AI now being used, he said."Instead of just this call and response chat pattern that we've seen traditionally, you have background agents that can run for minutes or hours at a time, and that unlocks an order of magnitude more of both things that it can do, but also spend on some of these AI tools," Xiao said.The revenue growth is at the heart of an ongoing debate as company spending has raised fears of an AI bubble. Capital expenditures by Google, Amazon, Microsoft and Meta Platforms Inc. (META) -- collectively known as hyperscalers because they offer massive cloud computing services and global data center infrastructure -- is expected to be around $800 billion this year, with another $1 trillion in 2027, according to the companies and analyst estimates.The investment in new data centers, software and equipment was so large in the first quarter that it accounted for about two-thirds of the growth in US gross domestic product, according to data from the US Bureau of Economic Analysis.While revenue growth has been robust, the capital outlays are still sparking fears that spending has gotten too far ahead of future earnings potential."Most enterprises are yet to generate any returns from their AI spending," James Covello, head of Global Equity Research at Goldman Sachs, said in a note to clients this week."The companies making the models and the hyperscalers building the AI infrastructure are burning through cash and boosting their borrowing. While semiconductor companies are seeing record revenue and profits, the overall dynamic is 'unprecedented and unsustainable,'" Goldman Sachs said in a summary of Covello's report.Covello cited a Massachusetts Institute of Technology study last year that said 95% of AI investment has had no effect on company earnings. While AI tools helped improve individual worker efficiency, "the core barrier to scaling is not infrastructure, regulation, or talent."It is learning," the MIT study said. "Most GenAI systems do not retain feedback, adapt to context, or improve over time."Still, the revenue growth in the AI sector is unlike anything most analysts have seen in other technologies including the advent of the personal computer or the Internet. On the consumer side, AI adoption "has been spectacular," Covello said in his note. He cited a Stanford Institute of Human-Centered AI study that found that 53% of consumers have adopted generative AI tools within three years of the release of ChatGPT."The bull-bear gap on AI is wider than almost anything I've written about," said Philip Dubach, a strategy consultant and independent researcher who has written widely about AI.He cited reports that showed OpenAI went from $2 billion in annualized run-rate revenue to $24 billion in 24 months and Anthropic growth from $1 billion to $30 billion in 15 months as "unprecedented growth rates." OpenAI and Anthrophic didn't immediately respond to requests for comment Friday.Yet "the math on capex still doesn't close at any plausible revenue figure I can build up to," he said.Dubach estimates that year-to-date 2026 revenue for AI is about $100 billion shared between Microsoft, Anthropic, OpenAI, Amazon and Google. That figure accounts for double-counting that's common in the industry, he said. Many AI systems are integrated into each other and their services can overlap.The capex spending, however, "is a staggering amount of money chasing returns that haven't fully landed," Dubach said.In the three months through March, Microsoft reported 30% revenue growth in its Intelligent Cloud segment, with sales for its cloud-based computing Azure service up 40%. Google Cloud revenue rose 63% from a year earlier; Amazon Web Services was up 28%.Microsoft and Amazon declined to comment to, while Google didn't respond to a request for comment."The thing is, can these companies grow their revenue fast enough to fund the AI build that's required?" said Bruce Murray, CEO and chief investment officer at the Murray Wealth Group.Murray, who owns all four stocks, said the companies have other business lines to generate the capital to spend on building out their AI infrastructure."It's going to be really difficult to tell who gets over their skis a little too far," he said. As a long-term investor Murray said he has confidence that the AI play will pan out."Meta's maybe the one we'd be the most concerned about, but still, on a relative basis we're still sticking with it," he said. Meta's first-quarter ad revenue rose 33%. The company didn't respond to a request for comment.The Facebook parent "is growing nicely in their advertising business, but it seems to be a bit behind on getting something achievable with AI that's actually going to generate the money," Murray said.One area of AI revenue that has yet to emerge is retail users. A separate Menlo Ventures report from June 2025 found that while 61% of consumers it surveyed had used AI in the past six months, only 3% of users were paying for it. Still, companies including Google and Amazon can earn advertising revenue from those users who aren't yet paying. "My wife uses ChatGPT for everything before she sends it out," but doesn't pay for it, Murray said.As a venture capital firm, Menlo Ventures invests in some of the companies it analyzes such as Anthropic, Wispr Flow, OpenRouter, Numeric and others.Menlo's Xiao said the firm saw very different activity in AI revenue compared with what the MIT report concluded last year."Part of our report was sort of standing in opposition to the MIT report, pointing to the real use cases and the real enterprise dollars that are flowing into the ecosystem and being spent and actually transforming how work is done," Xiao said. "AI looks a lot different from previous waves that we've seen where there has been maybe irrational exuberance."The demand for the tech that's driving the spending may appear "scary," he said."If you contrast that to the build out of the telco boom in the early 2000s, they were laying thousands of miles of fiber that would not be used for years," Xiao said. "There's a difference between this time as opposed to last time, that I think does make it quite exciting, at least from our view. It feels like this time is much more sustainable."Matthew LeisingPrice: $418.12, Change: $+8.69, Percent Change: +2.12%

AI Revenue May Jump Fivefold to $200 Billion This Year as Spending Race Intensifies

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Sectors32d ago

Sector Update: Tech Stocks Rise Late Afternoon

Tech stocks were higher late Thursday afternoon, with the State Street Technology Select Sector SPDR ETF (XLK) rising 1.7% and the State Street SPDR S&P Semiconductor ETF (XSD) up 0.4%.The Philadelphia Semiconductor index increased 0.8%.In corporate news, Nvidia (NVDA) shares climbed 4%. About 10 Chinese firms have secured US clearance to buy Nvidia's H200 AI chip, Reuters reported, citing unnamed sources. Nvidia Chief Executive Jensen Huang is accompanying President Donald Trump in his China trip, along with executives of several other major US tech companies.Cerebras Systems (CBRS) stock was up more than 72% in late trading following its Nasdaq debut.Cisco (CSCO) shares jumped 13% after it reported a year-over-year jump in fiscal Q3 earnings and revenue, topping market expectations, and raised its fiscal 2026 guidance. The firm also announced restructuring plans that included lay-offs of nearly 4,000 employees.Microsoft-backed (MSFT) OpenAI is preparing possible legal action against Apple (AAPL) as the partnership between the two companies has become strained, Bloomberg reported. Apple shares were fractionally lower, and Microsoft was up 1%.