Consumer spending and hiring may be in a slow period in the broad economy, but the big US tech companies are going the opposite way, due to their large investment spending in artificial intelligence. In the latest earnings reports from large tech companies, namely Microsoft, Amazon, Alphabet, and Meta all showed massive increases in capital expenditures mostly toward AI spending. Most of this AI spending is aimed at new data centers, advanced chips and cloud capacity for larger models. Microsoft spent almost $35 billion last quarter, more than 70% from a year ago, while Amazon spent almost $34 billion. Alphabet clocks its full year spending in at roughly $90 billion, and Meta enlarged its spending over $70 billion, showing no sign in this AI spending race.
Even with good revenue and solid earnings growth, investors aren't jumping for joy quite yet. Shares of Meta and Microsoft dropped after their reports came out due to worrying that the AI investment would squeeze the profit margins for these companies. Even though these companies are ensuring these investors that this spending is necessary to meet the large demand for AI development to secure the top spot in the race, the investors still aren't fully convinced if, or when the investment will start to pay off.
The difference between investor skepticism and corporate optimism is shared in its likeness in Silicon Valley. Where executives of tech companies are rather optimistic about the surge of Ai and all of the demand that comes with it. They believe in the transformation that AI will bring upon the economy. Markets however do not reflect that; they are more so reflecting the billions in spending on infrastructure and massive energy costs that may not pay near term. As of now it is just a game of risk, although the future seems to be in AI the question seems to be how soon that future will be.
How much Google, Meta, Amazon and Microsoft are spending on AI
Big Tech is in an AI arms race, and the price tag is huge. Investors aren’t against AI—they’re worried about shrinking profit margins, big power bills, and how long it will take for all this hardware to make steady money.
ReplyDeleteThe simple way to look at it is: watch how much AI brings in as a share of cloud revenue, whether gross margins on AI work improve, and if real usage grows faster than the spending. If those numbers move up together, confidence will follow. If they don’t, it stays an expensive promise.