Tech giants to spend $200 billion this year chasing AI – BNN Bloomberg

(Bloomberg) — Three months ago, Wall Street chastised the world’s biggest tech firms for spending huge sums on artificial intelligence development, only to deliver results that didn’t justify the costs.

Silicon Valley’s answer this quarter? They plan to invest even more.

The capital expenditures of the four largest Internet and software companies – Amazon.com Inc., Microsoft Corp., Meta Platforms Inc. and Alphabet Inc. – are estimated to total well over $200 billion this year, a record for the runaway collective. Executives at each company warned investors this week that their waiver would continue next year or even increase.

The syndrophy highlights the extreme costs and resources consumed in the worldwide AI boom triggered by the arrival of ChatGPT. Tech giants are racing to secure the rare chips and build the sprawling data centers the technology demands. To do this, companies have entered into agreements with energy suppliers to power these facilities, even reviving a notorious nuclear plant.

Each is trying to convince Wall Street that these huge investments will make their future businesses more profitable than their current ones selling digital ads, goods and software.

On an investor call Thursday, Andy Jassy, Amazon’s chief executive, called AI a “really unusually large, maybe once-in-a-lifetime type of opportunity,” highlighted by his company’s projection for record spending of $75 billion by 2024. “I think our customers, our business and our shareholders will feel good about the long term — that we’re aggressively pursuing it.” Analysts at MoffettNathanson called Amazon’s spending “truly staggering.”

A day earlier, Meta CEO Mark Zuckerberg pledged to step up investment in AI language models and other futuristic projects that he now sees as central to his company’s future. Meta’s capital spending could rise to $40 billion this year. Meanwhile, Alphabet’s capital budget beat Wall Street expectations, and its chief financial officer, Anat Ashkenazi, projected “substantial” increases in 2025.

Apple Inc. it also promised to invest in AI, introducing a suite of services like a more capable Siri called Apple Intelligence. But its relatively lackluster financial results this quarter weren’t helped by its new AI products, which largely didn’t arrive.

Financial results for the tech giants this week were mixed. Shares of Amazon and Google parent Alphabet rose after the companies beat earnings expectations, largely due to growth in their cloud computing units. But Meta and Microsoft fell after the former’s spending plans caused jitters and the latter’s prospects for cloud revenue growth disappointed.

Alphabet, Microsoft and Meta rose slightly in pre-market trade on Friday, while Amazon jumped 6.7 percent before the open in New York. Apple was down about 1.1 percent in early trade.

For Microsoft, its poor quarterly performance came not because customers didn’t line up to pay for its cloud and AI offerings, but because the company couldn’t build capacity fast enough. “That demand came in pretty quickly,” CEO Satya Nadella told investors on a call Wednesday. Data centers, he added, “are not built overnight.”

Microsoft spent $14.9 billion in the quarter, up 50 percent 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 Microsoft investors that he would work to put his data center supply chain in a “more balanced position.”

Analysts were generally optimistic that Microsoft’s data center supply woes would eventually be resolved. The issue will “modestly” restrict Microsoft’s cloud business, but the company’s investments, particularly its large stake in OpenAI, “plant the long-term seeds for success,” JPMorgan analysts wrote in a note after the company’s results.

Wall Street’s preoccupation with spending sprees isn’t going away. This week, Meta reported a $4.4 billion operating loss for Reality Labs, its division that makes augmented reality glasses and other gadgets that are far from commercial success. The company has also spent heavily to produce its Llama models that aim to compete with Google and OpenAI.

On Meta’s earnings call, Zuckerberg argued that these AI investments improve the company’s core business of selling ads on Facebook and Instagram. But investors will remain nervous about any sign of weakness in the ad space “while continuing to wait for a return on Meta AI’s bigger bets,” said Jasmine Enberg, principal analyst for Emarketer.

Still, Meta shares are up 60% this year. And some analysts said Zuckerberg’s big spending will continue to pay off. “Of course, history is on his side,” MoffettNathanson wrote in their report, “and now investors have been taught that patience here is a virtue.”

–With assistance from Subrat Patnaik and Henry Ren.