Some of the world’s biggest tech giants reported quarterly earnings on Wednesday – with a mixed bag of results as fears grow that a bubble is forming in artificial intelligence.

Microsoft revealed that its spending on AI infrastructure hit almost $35bn (£26.5bn) in the three months to the end of September, a sharp rise compared with the year before.

Despite revenue jumping 18% and net income rising 12%, shares plunged by close to 4% in after-hours trading, with investors concerned about the mounting costs of sustaining the boom.

Microsoft’s vice president of investor relations Jonathan Neilson said: “We continue to see demand which exceeds the capacity we have available.

“Our capital expenditure strategy remains unchanged in that we build against the demand signal we’re seeing.”

Big Tech is facing increasing pressure to show returns on the massive AI investments they’re making, against a backdrop of soaring valuations and limited evidence of productivity gains.

Microsoft became the world’s second most valuable company this week thanks to its 27% stake in OpenAI, the creator of ChatGPT.

Its market capitalisation surged beyond $4trn (£3trn) at one point, but that psychologically significant threshold is now in doubt because of recent selloffs.

Alphabet makes history

Last night’s results weren’t all doom and gloom – with shares in Google’s parent company surging by 6% in after-hours trading.

Alphabet has also set out aggressive spending ambitions, but placated investors thanks to an impressive set of results that surpassed analysts’ expectations.

Total revenue for the quarter stood at a staggering $102.35bn (£77bn), with the search giant’s advertising unit remaining robust despite growing competition.

But concerns linger that Alphabet’s dominance in search could be undermined by AI startups, with OpenAI recently unveiling a browser designed to rival Google Chrome.

Hargreaves Lansdown’s senior equity analyst Matt Britzman shrugged off this threat – and believes the company is “gearing up for long-term AI leadership”.

He said: “Alphabet just delivered its first-ever $100bn quarter, silencing the doubters with standout performances in both Search and Cloud.

“AI Overviews and AI Mode are clearly resonating with users, helping to ease fears that Google’s core search business is under threat from generative AI.

“With ChatGPT’s recent browser demo falling short of a game-changer, Google looks well-placed to put up a strong defence as gatekeeper to the internet.”

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Meta faces a mauling

Meta – the parent company of Facebook, Instagram, and WhatsApp – saw its shares tumble by as much as 10% in after-hours trading.

Mark Zuckerberg’s tech empire anticipates “notably larger” capital expenses next year as it ramps up investments in AI and goes on a hiring spree for top talent.

Net income in the third quarter stood at $2.7bn (£2bn) and suffered an eye-watering $16bn (£12bn) hit because of Donald Trump’s “Big Beautiful Bill”.

Meta was late to the party on AI but has now doubled down on this still-nascent technology – setting an ambition to achieve superintelligence, a milestone where machines could theoretically outthink humans.

The social networking giant continues to benefit from its massive user base, and expects fourth-quarter revenues of up to $59bn (£44bn).

The US central bank has cut interest rates for the second time this year in a move consistently sought by President Trump.

Rates were brought down by a quarter of a percentage point to 3.75%-4%. Unlike the UK, the US interest rate is a range to guide lenders rather than a single percentage.

The Federal Reserve, known as the Fed, has opted for the cut despite the absence of economic announcements due to the government shutdown.

Latest employment figures were not published, as all non-essential functions of government are frozen over the inability of Republican and Democratic legislators to agree on a spending package.

The absence of these figures makes it trickier for the Fed to assess the state of the economy and meet its dual mandate to keep inflation steady and maintain maximum employment.

Data on price rises, however, showed inflation hit 3% in September, one percentage point above the Fed’s 2% target but lower than anticipated by economists.

The fact that concerns over spiralling inflation, fuelled by Mr Trump’s tariff-induced trade war, have not materialised, has facilitated the cut.

Interest rates had been held amid warnings from Fed chair Jerome Powell that the US economy would grow less and goods would become more expensive due to hiked taxes on imports and the associated disruption in supply.

Mr Powell and the Fed in general have, as a result, been the subject of Mr Trump’s ire. The president sparked a crisis over the Fed’s independence when he moved to remove rate-setter Lisa Cook from her post at the Federal Reserve on alleged mortgage fraud grounds, which she denied.

Before the first interest rate drop of his term, in September, Mr Trump had threatened to remove Mr Powell, calling him a “stupid person” and saying he “should be ashamed”. The animosity comes despite Mr Trump appointing Mr Powell during his first presidential term.

What next?

The prospect of an interest rate cut was one of the factors boosting US and European stock markets in the days running up to the vote, with major stock indexes reaching record highs. Further increases are likely to be seen due to the decision.

OpenAI has completed its transition to a for-profit company, after court battles and public criticism from one of its founders, Elon Musk.

The company’s for-profit arm will become a public benefit corporation – a company type that must consider both the mission and shareholder interests.

But the non-profit arm will retain control over it to make sure OpenAI sticks to its mission of developing artificial intelligence to the “benefit of all humanity”.

The restructuring will make it easier for OpenAI to profit from its AI, which the company says will help it to realise its goal of developing artificial general intelligence (AGI).

AGI would mean AI can perform any intellectual task that a human can. It is often seen as the holy grail for AI companies.

In a call on Tuesday, OpenAI’s chief executive Sam Altman said “the most likely path” for the newly formed business is that it becomes publicly traded on the stock market, “given the capital needs that we’ll have and sort of the size of the company”.

The company also announced that Microsoft, a long-time backer of OpenAI, will now hold a roughly 27% stake in its new for-profit corporation, a slightly bigger share than OpenAI’s own nonprofit.

“We will be keeping a close eye on OpenAI to ensure ongoing adherence to its charitable mission and the protection of the safety of all Californians,” said California Attorney General Rob Bonta.

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OpenAI said it completed its restructuring “after nearly a year of engaging in constructive dialogue” with the offices in both states.

“OpenAI has completed its recapitalization, simplifying its corporate structure,” said a blog post Tuesday from Bret Taylor, the chair of OpenAI’s board of directors.

“The nonprofit remains in control of the for-profit, and now has a direct path to major resources before AGI arrives.”

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Musk v Altman: The battle to become king of AI

When OpenAI initially suggested restructuring, Mr Musk asked a judge to block this from happening.

He launched a legal case against the company in 2024, accusing it of a breach of contract.

Mr Musk accused the ChatGPT developer of transforming into “a closed-source de facto subsidiary of the largest technology company, Microsoft”, according to a court filing.

“It is not just developing but is actually refining an AGI [artificial general intelligence] to maximise profits for Microsoft, rather than for the benefit of humanity,” the court filing said.

A legal battle ensued and earlier this year, Mr Musk offered to buy OpenAI for $97.4bn (£78.7bn) – an offer that was quickly rejected by Mr Altman, who told Sky News: “The company is not for sale.”

After announcing the changes on Tuesday, Mr Altman said:

“California is my home, and I love it here, and when I talked to Attorney General Bonta two weeks ago I made clear that we were not going to do what those other companies do and threaten to leave if sued.

“We really wanted to figure this out and are really happy about where it all landed – and very much appreciate the work of the Attorney General.”