Artificial intelligence (AI) isn’t paying off yet for Big Tech in earnings despite ever-escalating spending on the technology.
A confluence of product delays, costs associated with data centers and massive investments in AI startups contributed to the revenue shortfall, which led to heavy stock losses for a few big names this week.
Tech’s biggest earnings week of the quarter could be summed up in two sentences: NVIDIA Corp.’s stock fell nearly 5% Thursday on investor fears of a slowdown in AI spending and potential delivery delays of its AI chips. Meanwhile, Advanced Micro Devices Inc.’s fourth quarter sales outlook on Tuesday came in lower than expected, raising investor worries that AI sales were still light. Shares of AMD suffered their biggest single-day loss in two years on Wednesday.
Stoking the anxiety is ever-escalating spending on AI by Big Tech despite modest AI revenue returns.
Amazon.com Inc.’s capital expenditures soared to $22.6 billion in its most recent quarter from $12.48 billion a year ago. A major chunk of that investment went to data centers and NVIDIA GPUs used for AI.
Microsoft Corp.’s spending nearly doubled to $20 billion from the year-ago period, though company Chief Financial Officer Amy Hood told analysts Wednesday that AI-related spending will eventually ease.
Facebook parent Meta Platforms Inc.’s expenses rose 36% to $9.2 billion from the year-ago quarter.
Alphabet Inc.’s Google said its capital expenditures, which jumped 63% to $13 billion, would not increase in its current fourth quarter.
“As we look forward, we are working to balance our investments in AI and other growth areas with the cost discipline needed to fund those activities,” Google CFO Anat Ashkenazi said on a conference call with analysts following the company’s third-quarter results Tuesday. He added that while spending will increase in 2025, it will be “likely not the same percent step-up that we saw between ’23 and ’24.”
During its quarterly report Wednesday, Microsoft indicated delays in shipments of GPUs from “third parties” weighed on its guidance for its AI cloud business in the current quarter.
“Microsoft said they are not meeting current demand, because they can’t get data centers up in time, which could indicate they are not getting the NVIDIA chips they depend on in time to support their customers,” Gil Luria, a D.A. Davidson analyst, told Yahoo Finance.
Further raising concerns, Microsoft’s Hood said the company would take a loss of about $1.5 billion at OpenAI, in which Microsoft has invested at least $13 billion.
There is some good news on the horizon, however: AI-related products are on pace to contribute about $10 billion to Microsoft’s annual revenue — the “fastest business in our history to reach this milestone,” Microsoft CEO Satya Nadella said in a call with analysts Wednesday.
Amazon CEO Andy Jassy, during a conference call with analysts, said the company’s AI business that includes development tool Bedrock and its shopping assistant, Rufus, was “growing more than three times faster” than AWS was at a similar stage of its business development.
Meta CEO Mark Zuckerberg said more than 1 million advertisers had used Meta’s generative-AI tools to create more than 15 million ads in the past month.
