Three months back, Wall Street came down hard on Big Tech for its reckless AI spending spree. Billions poured into development with little return to show. Investors, unimpressed, hit back.
The response from Silicon Valley? Spend even more. This year alone, the biggest tech firms (you know, Amazon, Microsoft, Meta, and Alphabet) will collectively burn over $200 billion on AI. And it’s only ramping up. Each CEO has made it clear: next year’s AI budget will be even higher.
This relentless race isn’t cheap. Companies are scrambling to grab scarce, high-end chips and build massive data centers to fuel this tech. They’re striking deals with power suppliers to keep these centers online, even reopening a nuclear plant to support their AI ambitions.
For these giants, the goal is to convince Wall Street that this investment will lead to more profits, replacing their current revenue streams from ads, digital products, and software.
Amazon’s $75 billion bet on AI
Amazon is leading the charge. CEO Andy Jassy called AI a “once-in-a-lifetime opportunity” and projects Amazon will spend a record $75 billion on it in 2024.
“Our customers, the business, and our shareholders will feel good about this long term,” he claimed. Analysts at MoffettNathanson share this sentiment, calling Amazon’s spending “truly staggering.”
Meta is right behind Amazon, with CEO Mark Zuckerberg pledging a major ramp-up in AI investments. Zuckerberg sees AI language models and related projects as critical to Meta’s future, pushing the company’s capital spending up to $40 billion this year.
For Zuckerberg, these AI tools will improve Meta’s ad-based business on Facebook and Instagram. But the investors aren’t all convinced, especially with Reality Labs, Meta’s division for augmented reality, posting a $4.4 billion loss this week.
Microsoft’s data center crunch and alphabet’s AI tack
Microsoft faces its own set of challenges. The company’s $14.9 billion quarterly spending was its highest ever in recent years, marking a 50% jump. But Microsoft hit a wall this quarter, unable to meet demand fast enough because of a capacity shortage.
CEO Satya Nadella explained to investors that “data centers don’t get built overnight.” CFO Amy Hood assured investors they’re working to fix this capacity issue and balance out supply.
Meanwhile, Alphabet pushed beyond Wall Street expectations with its capital spending budget. CFO Anat Ashkenazi predicted further hikes in 2025, focusing on building out AI infrastructure and cloud systems.
CEO Sundar Pichai also highlighted that the company’s full stack of AI products is already in operation at scale, emphasizing Alphabet’s plan to take advantage of its AI tech across Google’s search, cloud, and ad products.
Alphabet and Amazon, however, benefited from the latest earnings round, with both reporting gains thanks to strong growth in cloud-based revenue. Alphabet posted a 35% increase, while Amazon saw a 19% rise in cloud revenue.
In contrast, Microsoft disappointed with its slower cloud growth, partly due to its supply bottleneck. Meta’s spending plans also rattled investors, with some expressing doubts about the company’s capacity to balance ad revenue and AI investment.
AI spending still divides Wall Street
Wall Street is watching Big Tech’s AI spending closely. For some, Microsoft’s massive OpenAI investment and its ongoing AI ventures show potential, even if its cloud expansion is temporarily slowed by supply issues.
JPMorgan analysts described Microsoft’s AI investments as “planting long-term seeds for success,” though it’s unclear how soon these seeds will yield returns. But as Microsoft works to ease its supply problems, the uncertainty has been a cause for concern.
Meta’s Reality Labs losses, however, stood out as a glaring downside in its AI venture. Investors like Deepwater Asset Management’s Gene Munster pointed to the pressure Meta faces to keep its ad business steady while chasing risky, costly AI projects. Meta’s stock did rise 60% this year, but skepticism about its Reality Labs division hasn’t gone away.
Apple also waded into the AI pool with new features, like Apple Intelligence and an improved Siri, yet failed to hit financial targets this quarter. The lukewarm response to Apple’s AI offerings added fuel to critics’ arguments that AI spending may not yield results soon.
Nvidia stays on top
Meanwhile, all eyes remain on Nvidia, the primary supplier of chips driving the AI boom. Nvidia’s stock has skyrocketed sevenfold since ChatGPT’s launch in 2022, giving it a prime position in the AI supply chain.
However, the growth may slow as the current AI buildout reaches a saturation point. Analysts suggest that as this wave settles, the next big players could be Oracle and Salesforce, who may step into AI with their own offerings. But Nvidia, for now, stands as the clear leader in chip supply for AI systems.
Despite Wall Street’s concern, Big Tech’s investments suggest that the sector is committed to seeing AI through. And for some, the payoff is already beginning to show. Gene Munster described AI demand as “robust,” with companies scaling up to monetize their investments without compromising current profits.
As long as these tech giants keep the infrastructure in place, Munster believes, the AI trade will keep going strong.
