What goes up must come down – this could not be more apt for some of the most well-known AI-linked tech stocks:
- Amazon (NASDAQ: AMZN)
- Microsoft (NASDAQ: MSFT)
- ServiceNow (NYSE: NOW)
Amid the headwinds of rising capital expenditures (capex) and “doom-and-gloom” AI disruption narratives, are they buying opportunities or value traps masquerading as bargains?
We unpack their earnings to find out.
ServiceNow: AI Disruption Victim?
Is AI eating ServiceNow’s business?
With ServiceNow undergoing a 45% plunge in share price, investors seem to think so.
However, its financial numbers tell a different story.
In the fourth quarter of 2025 (4Q2025), subscription revenue increased 21% year on year (YoY) to US$3.5 billion, driving net income up 4.4% to US$401 million, driven by AI adoption and monetisation.
Clearly, the management isn’t buying the apocalyptic “AI-is-eating-ServiceNow” narrative and laid out several refuting facts.
In 4Q2025, the Annual Contract Value (ACV) of “Now Assist”, its generative AI suite, more than doubled YoY, surpassing US$600 million, hardly showing any signs of slowing down, let alone being disrupted.
With its monthly active users growing 25% YoY in 4Q2025, ServiceNow’s platform looks more embedded in the enterprise, not less.
AI is inherently “probabilistic” (uncertain), but enterprises need “deterministic” (predictable) workflows for governance.
This works in ServiceNow’s favour as it has positioned itself as the “semantic layer” and “AI control tower”, to secure and govern these AI agents.
Far from flocking to alternative AI solutions, ServiceNow boasted a high 98% renewal rate, indicating that customers have largely chosen to stay with the platform.
Microsoft: Rising Capex, Higher Lifetime Value (LTV)
Shortly after its latest earnings, Microsoft’s shares plunged amid growing scepticism about its cloud growth amid its rising capex spend.
In the second quarter of the fiscal year ending 30 June 2026 (2QFY2026), Microsoft’s revenue increased 17% YoY to US$81.3 billion, driving net income up nearly 60% to US$38.5 billion.
Notably, capex grew 66% to US$37.5 billion – faster than its Azure and other cloud services revenue, which increased 39%.
Should investors be alarmed?
Crucially, investors should note that Microsoft adopts an LTV portfolio strategy, where it doesn’t blindly allocate resources to its fastest-growing Azure business.
Instead, supply-constrained capacities are intentionally allocated to its core businesses like M365 Copilot and Dragon Copilot, with higher LTV – even if it keeps Azure sales growth below 40% YoY.
Looking at its long-term annual operating margin, it’s consistently higher than its cloud provider peers – something investors should consider.
Amazon: Paving the Way for Future Growth
In the fourth quarter of 2025 (4Q2025), Amazon‘s net sales reached US$213.4 billion, an increase of 14% YoY, driving net income up 6% to US$21.2 billion, due to strong growth in AWS, advertising, chips, and retail, partially offset by one-time charges.
However, free cash flow (FCF) for the trailing twelve months fell 71% to US$11.2 billion, driven by a significant surge in capex to support AI investments.
Investors fixated on its FCF drag are missing the broader picture – that Amazon is already monetising its business, even as investments rise:
- AWS monetises capacity rapidly, generating a quarterly growth of 24% YoY to US$35.6 billion, reaching US$142 billion annualised run rate – its fastest growth in 13 quarters.
- As Amazon Bedrock (AI model suite) scales, its customer spend surged 60% quarter on quarter, generating a multibillion-dollar annualised run rate.
- In retail, margins improved through its US network regionalisation and leverage of over one million robots in its fulfilment networks.
While heavy spending on AI and satellite projects temporarily dampened its FCF, Amazon’s growing cloud and custom chip business suggest an exceptionally strong demand for its offerings.
Besides powering AWS, its AI capabilities are also utilised to optimise its core operations, paving the way for stronger future growth.
Get Smart: Discern Noise from Fundamentals
The recent selloffs of Amazon and Microsoft stems from a common market scepticism over the potential returns on their AI-related investments.
However, discerning long-term investors should consider something more important: Is the AI-led secular growth slowing, or is it just getting started?
For ServiceNow, it found itself in the eye of an apocalyptic AI-eating-SaaS hurricane.
Yet, its financials showed quite a different picture, and the management has vigorously refuted with hard data of accelerating adoption, rising ACV, and near full renewal rates.
For all three businesses mentioned above, the current sell off reflects their costs and perceived risks, despite the fundamentals leaning towards sustained growth.
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Disclosure: Larry L. owns shares of Amazon and Microsoft.
