Big Tech’s big AI buildout will not end until someone stops it
After four of the biggest competitors in the AI race held quarterly earnings calls late last month, two things are clear: Big Tech is not done spending record amounts on the AI data center buildout, and the AI data center buildout is not any closer to yielding its promised returns. A third thing is also starting to become clear - Big Tech will not be slowing down, at least not on its own. Amazon, Microsoft…
Key points
- Amazon, Microsoft, Alphabet and Meta plan to spend at least $720 billion on capital expenditures this year, mostly on AI infrastructure.
- Alphabet stock fell 13% in one day, its worst single-day drop, after Google Cloud growth came at the expense of Search.
- Microsoft raised $25 billion in bonds after saying it had not yet tapped debt markets to fund its AI buildout.
Four of the largest AI competitors told investors on recent quarterly earnings calls that they plan to spend at least $720 billion on capital expenditures this year, most of it on AI infrastructure. That comes on top of at least $1 trillion in spending commitments arranged for coming years, according to the article.
The spending plans triggered a sharp selloff in tech stocks last week that began to taper off as investors turned to Tuesday's midterm elections. The article notes that voters elected candidates who favor moratoriums and other restrictions on data centers, which could change the spending plans.
Returns still unclear
The article says Big Tech has not yet made money from AI despite the enormous spending. Revenue is growing: Amazon reported its fastest growth in five years for the quarter, Meta's ad revenue is surging, and Google Cloud's revenue more than doubled in a year.
Alphabet offered what the article calls the most uncomfortable example. Philipp Schindler, Alphabet's senior vice president and chief business officer, said on the earnings call that Google Cloud's growth came at the expense of its core Search business. Google Search ad revenue grew 12% in the third quarter, down from 17% a year earlier. Alphabet stock sank 13% in a single day on Thursday, its worst one-day drop in history.
It’s worth noting that the strong growth in AI Mode queries had an impact because of the lower monetization we were seeing in AI Mode
— Philipp Schindler
More spending ahead
Alphabet plans capital expenditures of $195 billion to $205 billion this year and will increase spending "significantly" in 2027, CFO Anat Ashkenazi said. Amazon CEO Andy Jassy said the company intends to spend "meaningfully more" in 2027 than the $220 billion planned this year, calling it a "once in a lifetime opportunity." Meta, expected to spend $135 billion to $145 billion this year, did not disclose next year's plans, but major financial institutions expect an increase.
Microsoft was the only one of the four to escape Wall Street's ire last week, posting $45.2 billion in quarterly capital expenditures, below the expected $50 billion, which it attributed to "third party capacity delays." CFO Amy Hood said the company had not yet tapped debt markets, and news of a $25 billion, 10-part bond sale broke the next morning. The AI startup Anthropic reported quarterly revenue of $17 billion, up more than 1,000% from last year, but compute costs of $17.5 billion.
