Big Tech’s AI Spending Surge Worries Investors About Immediate Returns

Meta, Microsoft Boost AI Capital Expenditure Amid Rising Demand

Meta, Microsoft, and Amazon are increasing investments in AI, focusing on AI-driven data centers and infrastructure expansion to keep up with growing demand. These tech giants aim to secure their future role in AI technology, but Wall Street is calling for quicker returns on the billions spent.

Meta and Microsoft announced this week that their capital expenses surged, driven by expanding AI investments. Alphabet also reported ongoing, elevated AI expenditures, and Amazon anticipates increasing its AI spending into 2025 to meet future demands. This ramped-up spending might impact profit margins, potentially unsettling investors.

AI Capital Spending Impacts Big Tech Stocks

Shares of Meta and Microsoft both fell on Thursday, as the companies grappled with balancing ambitious AI goals with investor expectations for short-term profitability. Despite meeting profit targets, Meta’s stock dropped 4%, Microsoft 6%, and Amazon 3.4% during trading. Amazon’s shares, however, received an after-hours boost following better-than-expected third-quarter results.

GlobalData analyst Beatriz Valle commented, “The cost to build AI technology capacity is high, and the competition among tech giants intensifies as they work to meet demand. Long-term returns on these investments are anticipated but may take time to materialize.”

Expanding AI Infrastructure: A “Once-in-a-Lifetime” Opportunity

Amazon CEO Andy Jassy described AI as a transformative opportunity, potentially justifying the company’s $75 billion expected capital expenditure this year — a significant increase from last year’s $48.4 billion. This figure could rise even higher in 2025. Microsoft, whose quarterly capital spending has exceeded past yearly totals, and Meta are similarly scaling investments to prepare for widespread AI adoption.

Despite facing bottlenecks in data center capacity, Microsoft plans to continue raising AI investments, with its Azure cloud growth potentially slowing due to capacity issues. D.A. Davidson’s technology research head, Gil Luria, noted that every year of heavy investment slightly drags on future margins, potentially impacting investor sentiment.

AI Chip Supply Bottlenecks Constrain Industry Expansion

Amid Big Tech’s race to build AI infrastructure, chipmakers like Nvidia and AMD face high demand for AI chips, outpacing supply capacity. AMD recently warned that AI chip constraints might persist into next year. These supply challenges are slowing cloud company efforts to expand capacity, potentially affecting short-term returns but underscoring AI’s long-term value.

Long-Term AI Potential Outweighs Immediate Gains

Despite the investor pressure for near-term returns, Meta and Microsoft leaders remain focused on AI’s transformative potential. Reflecting on the growth of cloud infrastructure, Meta CEO Mark Zuckerberg emphasized on the earnings call that significant investments in AI infrastructure are critical for capturing future opportunities, even if the returns aren’t immediate. “This is the time for us to establish the foundations of AI technology, even if it’s costly,” he said.

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