Large technology corporations like Microsoft and Meta are increasing their spending to develop artificial intelligence (AI) data centres due to the enormous demand. However, Wall Street is eagerly awaiting a faster return on the billions invested.
Microsoft and Meta stated on Wednesday that their capital expenditure was on the rise due to their investments in AI. Alphabet also confirmed on Tuesday that these costs would remain high.
It is anticipated that Amazon, set to announce its results on Thursday, will give a similar forecast.
The massive amount of capital expenditure could potentially jeopardise the sizeable profits of these companies, and any tension on this measurement is likely to unsettle investors.
Shares of large tech companies dipped in after-hours trading on Wednesday. This highlights the difficulties these corporations face whilst trying to juggle their ambitious AI goals and reassuring their investors about short-term outcomes.
Even though both Microsoft and Meta exceeded profit and revenue expectations for the period between July and September, their stock prices fell in after-hours trading; a 3.6% reduction for Microsoft and a 2.9% decrease for Meta. Amazon’s stock also experienced a decline.
GlobalData analyst Beatriz Valle mentioned that running AI technology is expensive and it’s a competitive race between large tech companies to increase capacity. Time will be needed to see the adoption of technology and the returns on investment.
In recent times, Microsoft has spent more in a single quarter than its total annual expenditure until the fiscal year 2020, says Visible Alpha. Similarly, Meta’s quarter spending is equivalent to what it spent in a full year until 2017.
Microsoft revealed that its capital spending increased by 5.3% to $20 billion in its first fiscal quarter, and it anticipates further investment in AI in the second quarter.
Microsoft’s crucial cloud business Azure is expected to slow down owing to capacity constraints at their data centres.
Gil Luria, head of technology research at D.A. Davidson, said that for every year Microsoft overinvests, they pull down their margins by one percentage point for the next six years.
Meta, on the other hand, warned of “significant acceleration” in AI-related infrastructure expenses in the coming year. Capacity restrictions are causing ripples throughout the tech industry.
Chip-makers like Nvidia are finding it difficult to keep up, consequently making it challenging for cloud companies to expand their capacity.
Advanced Micro Devices, having announced its financial results earlier in the week, has expressed concerns over the supply of AI chips which are under strain due to a demand surge that far surpasses supply. This shortfall is projected to continue into the upcoming year. Regardless of these concerns, both Meta and Microsoft remain optimistic about the future prospects of AI, indicating that we are just at the beginning of the AI cycle.
Big Tech’s investment into AI is comparable to its earlier investment in cloud technology, waiting for customer adoption. Establishing the necessary infrastructure may not be the immediate expectation of investors, according to Meta’s CEO Mark Zuckerberg during a recent earnings call. However, he underscored the significant potential in this area, insisting that Meta will maintain hefty investment in it. – Reuters
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