Three months ago, Wall Street investors were chastising the world’s biggest technology companies for spending enormous sums to develop artificial intelligence, only to deliver results that didn’t justify the costs.
Silicon Valley’s response this quarter? Plans to invest even more.
Capital spending by the four biggest internet and software companies – Amazon, Microsoft, Meta and Alphabet – is expected to total well over $200 billion this year, a record sum for the profligate collective. Executives at each company warned investors this week that their spending will continue next year, or even increase.
The spree highlights the extreme costs and resources consumed by the global AI boom triggered by the arrival of ChatGPT. Tech giants are racing to secure scarce next-generation chips and build the sprawling data centers the technology demands. To achieve this, companies have struck deals with energy suppliers to power these facilities, even reviving a notorious nuclear power plant.
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Each is trying to convince Wall Street that these huge investments will make their future businesses more profitable than their current ones, which sell digital ads, products and software.
In a conference call with investors on Thursday, Andy Jassy, Amazon’s chief executive, called AI “a really extraordinarily large, perhaps once-in-a-lifetime opportunity,” evidenced by his company’s projection of a record $75 billion. in spending for 2024. “I think our customers, the company and our shareholders will feel good about this in the long term – that we are pursuing this aggressively.” Analysts at MoffettNathanson called Amazon’s spending “truly surprising.”
A day earlier, Meta CEO Mark Zuckerberg promised to increase investment in AI language models and other futuristic projects that he now considers essential to his company’s future. Meta’s capital spending could reach $40 billion this year. Meanwhile, Alphabet’s capex budget came in above Wall Street’s expectations, and its chief financial officer, Anat Ashkenazi, projected “substantial” increases in 2025.
Apple Inc. has also promised to invest in AI, introducing a suite of services, such as a more capable Siri, called Apple Intelligence. But its relatively weak financial results this quarter weren’t helped by its new AI products, which for the most part hadn’t arrived yet.
READ MORE: For Tim Cook, Apple Intelligence is as revolutionary as the iPhone was
Financial results from tech giants this week were mixed. Shares of Amazon and Google parent Alphabet rose after the companies beat earnings expectations, largely due to the strength of growth in their cloud computing units. However, Meta and Microsoft fell after the former’s spending plans caused jitters, and the latter’s cloud revenue growth outlook disappointed.
For Microsoft, its lackluster quarterly performance wasn’t because customers weren’t lining up to pay for its cloud and AI offerings, but because the company couldn’t add capacity quickly enough. “All this demand came in very quickly,” CEO Satya Nadella told investors on a Wednesday call. Data centers, he added, “are not built overnight.”
Microsoft spent $14.9 billion in the quarter, a 50% increase from last year — and more than the company had ever spent on property and equipment in a single year before 2020. CFO Amy Hood told investors that Microsoft will work to put its data center supply issue on a “more balanced footing.”
Analysts were largely optimistic that Microsoft’s data center supply difficulties will eventually be resolved. The issue will “modestly” constrain Microsoft’s cloud business, but the company’s investments, especially its large stake in OpenAI, are “planting the seeds of long-term success,” JPMorgan analysts wrote in a note following the company’s results. enterprise.
Wall Street’s concern about excessive spending isn’t going away. This week, Meta reported $4.4 billion in operating losses for Reality Labs, its division that makes augmented reality glasses and other devices that are far from a commercial success. The company also spent a lot to manufacture its Llama models, which aim to compete with Google and OpenAI.
On Meta’s earnings call, Zuckerberg argued that these AI investments are improving the company’s core business, which is selling ads on Facebook and Instagram. But investors will remain nervous about any sign of weakness in the ad business “as they continue to wait for a return on Meta’s bigger bets on AI,” said Jasmine Enberg, principal analyst at Emarketer.
Still, Meta shares are up 60% this year. And some analysts have said that Zuckerberg’s big spending will pay off in the future. “It’s clear that history is on his side,” MoffettNathanson wrote in his report, “and investors have now been trained that patience is a virtue.”
