Can the AI boom cover its costs?

Microsoft is cutting over 2% of its workforce, or roughly 4,800 jobs, even as it continues to spend big on AI data centers. The cuts land in the middle of a broader Big Tech clearout: Amazon and Meta have trimmed thousands of roles this year too, with the industry's AI bills on pace to top $700 billion in 2026.

What’s going on here?

Microsoft’s cloud business is in strong demand, but AI infrastructure is expensive. Building new data centers, filling them with hardware, connecting them to power, and keeping them running takes a huge amount of cash upfront. Microsoft expects to spend $190 billion on those projects in 2026 alone.

When a company ramps up capital spending, the cash leaves immediately, but the cost can be spread over multiple years, through depreciation. So, Microsoft can report rising revenue and profits while its free cash flow, the money left after running and growing the business, gets squeezed. That helps explain why the company is investing heavily in AI and trimming costs at the same time – to maintain its balance sheets.

According to research firm Exponential View, global AI revenue, excluding China, hit $25 billion in the first quarter of 2026, topping the industry’s estimated $21 billion in depreciation costs. On the face of it, that’s a big deal: it suggests the hundreds of billions being poured into AI infrastructure might be economically sustainable.

What’s the takeaway?

It’s important to note that the report above only weighs revenue against depreciation. Revenue doesn’t include the day-to-day costs of running data centres: staff, maintenance, power, and the rest of what keeps the AI machine humming. Whether AI pays off in the long run, and which companies come out ahead, remain unsettled. For long-term investors, owning a broad slice of the industry gives you exposure to both the firms building AI and the ones putting it to work today.

(For expert-vetted ETFs that invest in AI and AI-adjacent sectors, see Flexible Portfolios.)

In Other News: The Japanese yen is near its 1980s lows

Despite attempts to prop it up, the Japanese yen hit its weakest level against the dollar since 1986. Back in late April, Japanese authorities splashed a record $72.5 billion buying yen, hoping to push the currency higher. That steadied it, but not for very long. Several forces are working against the currency’s strength.

The biggest is the interest-rate gap between Japan and the US. Japan has kept borrowing costs far below those in most major economies, which has encouraged some investors to borrow cheaply in yen and move the money into higher-yielding assets abroad. Even after the Bank of Japan lifted its benchmark interest rate in June to 1% – its highest level since 1995 – that’s still well below the US's key rate of 3.5% to 3.75%.

The US-Iran conflict also complicated the global inflation outlook, prompting investors to dial back expectations for US rate cuts and even price in the possibility of hikes. That makes dollar-denominated assets even more attractive, relative to the yen.

A weaker currency creates both winners and losers. Japan's exporters could see a big lift in profits, since their overseas earnings are worth more once converted back into yen. The country's main stock indices lean heavily on those exporters, so a weaker yen tends to carry the market up. Households and import-heavy businesses will feel the pinch, though, as they pay more for fuel, food, and raw materials.

Past performance is not an indicator of future returns. These articles were written in collaboration with Finimize.