Meta and Microsoft Ramp Up AI Spending, Prompting Wall Street Concerns
Microsoft, Meta, Amazon, and Google are ramping up the spending of their AI systems, straining profit margins and testing investor patience.
Meta and Microsoft are spending billions of dollars on AI infrastructure, which is making Wall Street worry about how the rising costs of capital investments will affect their finances. Both companies said on Wednesday that the costs of building AI skills are going up. Alphabet also said earlier this week that these costs would keep going up. When Amazon reports its earnings on Thursday, investors expect the company to show that it has followed these trends in spending on AI.
Big tech is racing to build AI-driven data centers to keep up with the rising demand for AI applications, which is reflected in the rise in capital spending. But because these companies are putting a lot of money into AI, they have to keep their profit margins high and meet shareholders’ needs for faster returns. After hours, trading in the stocks went down because of the news. Meta’s price dropped 2.9%, Microsoft’s fell 3.6%, and Amazon also dropped before its earnings report.
Meta’s Q3 results showed that infrastructure costs linked to AI will rise “significantly” over the next year. According to Microsoft, its capital spending went up 5.3% to $20 billion in the first quarter of its fiscal year. This spending helps AI grow, but it also puts a strain on resources. For example, Microsoft has warned that growth in its key Azure cloud services could be slowed down by capacity limits. Visible Alpha says that Microsoft’s current quarterly capital outlay is higher than its annual spending from just a few years ago, and Meta’s quarterly costs are higher than its full 2017 annual budget.
Industry Experts See Long-Term Potential Amid High Costs
Analysts think that these investments are both important and difficult. Beatriz Valle, a GlobalData analyst, talked about how expensive it is to run AI systems and how there is competition in the business to build more capacity. “It’s expensive to maintain AI technology, and securing sufficient capacity is a complex challenge,” Valle said. Gil Luria, head of technology studies at D.A. Davidson, also talked about the possible long-term effects on margins. He said, “Overinvestment by Microsoft over the next six years will drag down margins by a whole percentage point each year.”
Cloud companies aren’t the only ones who have problems with capacity. Chipmakers like Nvidia and AMD are having a hard time keeping up with the rising demand for AI computers, which is slowing down the whole industry. AMD recently said that there might not be enough AI chips until next year, which could make it harder for cloud companies to expand their AI services.
However, both Meta and Microsoft highlighted the longer term benefits of AI, comparing the development of this kind of infrastructure to the growth of the cloud industry. Meta CEO Mark Zuckerberg said that he respects the conflict between short-term results and long-term development potential. “Building AI infrastructure might not yield immediate rewards, but the opportunities are substantial,” he said it in the Meta earnings call.
As Big Tech spends more on AI infrastructure, the industry has to find a way to meet investors’ short-term needs while also laying the groundwork for AI apps that will change the world in the future.
