Skye Jacobs

Cutting corners: Tech executives say there are long-term benefits to their AI investments, drawing parallels to the early days of cloud technology. However, Silicon Valley's spend-first, profit-later attitude tests many investors' patience. Amazon, Microsoft, Meta, and Alphabet have invested significant sums in AI infrastructure – money that has not yielded justifiable returns at this point – to the displeasure of Wall Street. And yet Big Tech is not to be deterred.

Tech giants are set to spend a staggering $200 billion on AI-related capital expenditures this year, according to Bloomberg's calculations, marking an all-time high for these companies. It is an unprecedented level of investment, ranging from securing scarce high-end chips and constructing expansive data centers to forging deals with energy providers and even reviving a controversial nuclear plant for power.

Amazon is leading the charge with a projected record $75 billion in spending for 2024, as CEO Andy Jassy describes AI as a "once-in-a-lifetime opportunity." Analysts at MoffettNathanson called the sum "truly staggering."

Meta is not far behind, with capital spending potentially reaching up to $40 billion in 2024, while CEO Mark Zuckerberg commits to increased investment in AI language models and futuristic projects.

Alphabet has reported higher-than-expected capital expenditures and is projecting "substantial" increases in spending for 2025.

Microsoft's AI-related expenses are also soaring, having spent $14.9 billion in a single quarter, a 50 percent increase from the previous year. Meanwhile, it faces challenges in meeting demand due to data center capacity constraints.

Apple, while not as aggressive in its AI spending, has introduced "Apple Intelligence," a suite of AI-enhanced services, though these new AI products have not significantly impacted its financial results.

Wall Street's response was mixed as the tech giants reported varied financial results this quarter. Amazon and Alphabet saw their shares soar after beating earnings expectations, largely due to strong growth in their cloud-computing divisions. However, Meta and Microsoft experienced stock declines following concerns about spending plans and cloud revenue growth projections.

While some analysts remain optimistic about the long-term potential of these AI investments, concerns persist regarding the massive expenditures. JPMorgan analysts, for example, noted that Microsoft's data center supply issues might "modestly" restrict its cloud business but viewed the company's investments, particularly in OpenAI, as "planting the longer-term seeds for success."

These companies are also rolling out products to justify, at least in part, the massive costs of their AI investments. Microsoft is pursuing various monetization pathways for AI, including through Azure cloud services and GitHub Copilot. Meta has said that AI is already positively impacting its core advertising business by allowing firms to create more engaging ads using AI tools, while Amazon's AWS and Google Cloud have reported significant revenue growth, partially attributed to AI services.

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Big Tech doubles down on AI, $200 billion gamble raises concerns on Wall Street

RudyBob

Don't we need a lot more electricity capacity to do AI properly? Or is that a false conservative rumor? I'm serious in wanting some input

WhiteLeaff

It's an irrational vicious circle. They need to keep sustaining Nvidia's record profits, as it is seen as a bellwether for the AI market.

Executives and CEOs with fortunes tied to share prices don't want to let the house of cards fall.

VariableSpike · 2024-11-05T13:43:18-0500

This has strong echo's of the .com bubble, anything and everything needs to have AI as its the new thing, no matter return on investments or anything, its the way of the future and must come good!....is what they all say until all the investors really clock onto "no, this is just a massive predictive language algorithm, not something that will replace humans soon" and that for plenty of businesses, there's no real ROI or added lifetime value, which is of course the only things the investors really care about, no matter what it might help with, and that's when it all goes bang

noel24

Paraphrasing Joseph Conrad Korzeniowski: "The Bubble, the Bubble!"

GodisanAtheist

Yeah I'm feeling like the collapse is going to be catastrophic here.

godrilla

From fraction ROI to square root return on investment. The small time investors usually last one holding the bag.
Another day Another article from bias share holders that Nvidia is going to the moon.

godrilla

WhiteLeaff said:
It's an irrational vicious circle. They need to keep sustaining Nvidia's record profits, as it is seen as a bellwether for the AI market.

Executives and CEOs with fortunes tied to share prices don't want to let the house of cards fall.

I have a feeling the politicians are complicit and have a conflict of interest too. Once the bubble pops I forsee them short Nvidia and use the justice department' both ongoing lawsuits against Nvidia to finalize their findings and improve their positions. Obviously when they find another stock to ride.

redgarl

ROI is going to be there in a major way.

Intelligent Cities, Autonomous Driving, Robotics, Automation, UAV, Cyber Security, Crypto, IoT...

It is the 4th Industrial Revolution and it is just beginning. Let's see who is the fool in 10 years...

redgarl

People tend to forget that the companies investing in AI are the biggest companies who will not fail.

MS, Cadence, Adobe, Apple, Amazon, Meta, AMD, Nvidia, TSMC, Intel, Samsung, Sony, LG, CrowdStrike... whatever...

They will not go bust for buying 250M$ of Accelerators. People needs to wakeup and understand that the ones able to succeed will ripe the fruits of their investment.

Porkous

Probably they have some inside knowledge on the matter. Somewhere is a breakthrough and they don't let us know.

Is not just AI transformers... AI has learned to code !

I'm bewildered about this AI age we started to live in... Everything stagnated for years and all of a sudden we have a new tech.
I'm still not impressed by it... I don't see how giving inputs to AI can be so beneficial to us.

redgarl

"Amazon and Alphabet saw their shares soar after beating earnings expectations, largely due to strong growth in their cloud-computing divisions. "

Which also include client AI services...

umeng2002

Image upscaling is the only cool thing about AI now. Even AI generated photos and video look fake. Good for memes. Who pays for memes?

umeng2002

redgarl said:
ROI is going to be there in a major way.

Intelligent Cities, Autonomous Driving, Robotics, Automation, UAV, Cyber Security, Crypto, IoT...

It is the 4th Industrial Revolution and it is just beginning. Let's see who is the fool in 10 years...

Wow, that is a lot of buzzwords. There have many bubble before. There will be many bubbles again. It's not an industrial revolution when only like 2 companies are good at it with hundred billion dollar super computers training models.

Kashim

redgarl said:
They will not go bust for buying 250M$ of Accelerators. People needs to wakeup and understand that the ones able to succeed will ripe the fruits of their investment.

Yeah, except they're not spending $250 million. They're spending billions on AI and some of them are spending tens of billions. So far no one is actually making a profit or getting any kind of return on their investment. It's easy to predict that such and such will happen, but no matter how big a player you are you can only spend so much with nothing to show for it until trouble starts brewing. Let's not forget that these are all publicly traded companies and eventually investors are going to say "this is a waste of money, time to get out". Then the bubble will burst. You just wait and see.

psycros

All the big guys are trying to bait the smaller companies into betting the farm on AI, in hopes the minor players fail big.

acoustis

Kashim said:
Yeah, except they're not spending $250 million. They're spending billions on AI and some of them are spending tens of billions. So far no one is actually making a profit or getting any kind of return on their investment. It's easy to predict that such and such will happen, but no matter how big a player you are you can only spend so much with nothing to show for it until trouble starts brewing. Let's not forget that these are all publicly traded companies and eventually investors are going to say "this is a waste of money, time to get out". Then the bubble will burst. You just wait and see.

I don’t want to be rude but this is naive. Agreed there are billions going around but for no one making a profit is just totally misled view. These billions are moving out of some pockets (to be precise out of many) into the pockets of not so many.

And so there is a lot of motivation from the main players for status quo.

user556

acoustis said:
And so there is a lot of motivation from the main players for status quo.

What? Spending investor's money with nothing to show for it?

Jarvi5

I do see strong similarities with the .com bubble. The core tech businesses pouring vast amounts into AI seems to have become an arms race, but arguably they can afford it and will come out the other side with something worthwhile. What is creating the dangerous bubble is investors buying in at ever inflated prices. Fomo has taken hold, and a correction is inevitable. Added to this, AI startups are popping up all over, and other non-tech businesses are latching onto AI with no real understanding of how it will or will not benefit them. We’re pretty much at the point where dog food ads will claim to have ‘added AI’.
The bubble will burst…

yRaz

acoustis said:
I don’t want to be rude but this is naive. Agreed there are billions going around but for no one making a profit is just totally misled view. These billions are moving out of some pockets (to be precise out of many) into the pockets of not so many.

And so there is a lot of motivation from the main players for status quo.

The only people who got rich during the gold rush were the ones selling picks to gold miners

Dimitriid

The interesting part is not what happens if it's a bubble and it pops. We all kinda know what happens: lots of big players will probably be rescued but the world would probably move on.

But let's actually think about the hypothetical of AI proponents: What if it works? Well it basically replaces like 80% of all of the jobs, makes most big players unthinkable rich but then the entire global economy collapses: Even during the great depression the US had 25% unemployment rate, AI working as intended and replacing 50 to 80% of all jobs would send the entire planet into the dark ages.

You really think there's enough bunkers Besos, the Zuck or Jensen can build to survive an apocalyptic level of famine and death? You really think they could do anything to stop global revolutions? Most important question is you really think none of them have thought about this or have someone close to them made them seriously consider this?

That's basically all the proof you need AI is a pyramid scheme: sells the potential of future profits based on basically nothing, technology so magical it would literally end modern civilization. On a fundamental level it just cannot happen and would never happen, but convincing the latest round of investors to think it could is enough for them to keep grabbing as much money while they can before they jump off the ship.

Liranan

Anyone who thinks that what we have now is any form of AI has no idea what AI is and that this is nothing but marketing. And anyone who thinks that AMD, nVidia or Intel care about the consumer is absolutely wilfully ignorant of what's going on, they're all chasing that 'AI' cash and couldn't care less about gaming GPU's (they never did and now it's even worse).

Squid Surprise

psycros said:
All the big guys are trying to bait the smaller companies into betting the farm on AI, in hopes the minor players fail big.

I highly doubt they care enough about the “smaller companies” to spend billions on AI just to bankrupt them…
If they did, it would be cheaper just to buy those companies instead…

Mr Majestyk

umeng2002 said:
Image upscaling is the only cool thing about AI now. Even AI generated photos and video look fake. Good for memes. Who pays for memes?

For regular consumers, I entirely agree. What the average person thinks of as AI, though is not the real picture. AI or whatever you want to call is making amazing strides in huge areas of science, medicine and engineering. But waht we get fed is nothing but either BS plagiarising search engine masquerading as AI, or garbage AI generative fill, remove, videos. AI upscaling/sharpening/denoising though is amazing. If you had of told me even 5 years ago I could shoot an ISO 40000 image of a bird and though denoising retain all feather detail and have a clean usable image that would look great printed at A3 size, I would have laughed.

JuanDegr

There is ROI that can be calculated on a balance sheet and there is psychological ROI.

AI focused investments have positive effects on the perception of the company as a modern, opportunity-ready corporation. Do not underestimate this kind of ROI.

There will always be some degree of money burning, where money can be made. This applies to companies as well as to shareholders.

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