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Artificial intelligence

Big Tech's AI Spending Binge Continues

Strategic Insights

— 2 min read

Big tech companies such as Alphabet, Meta, and Microsoft have released their earnings reports, showcasing strong growth in revenue and net income, driven by the adoption of artificial intelligence (AI). The trio, along with Amazon, has pledged to spend huge sums on data centers and other AI infrastructure, with Microsoft chief executive Satya Nadella promising to invest $120bn over the next four quarters. Meta has guided to capex of $105bn next year, while Amazon is estimated to spend $106bn this year. The sector's historic spending binge on AI has eased investor concerns, with investors now optimistic about the prospects of AI-related growth.

Key Takeaways:

  • Alphabet, Meta, and Microsoft collectively added more than $350bn in stock market value after reporting double-digit increases in revenue and net income.
  • Microsoft became the second company to reach $4tn in market capitalisation, following chipmaker Nvidia.
  • The trio, along with Amazon, are on track to spend more than $350bn this year on data centers and other AI infrastructure.
  • Meta chief executive Mark Zuckerberg has been luring engineers to his "superintelligence" lab with pay packages in the hundreds of millions of dollars.
  • The sector's historic spending binge has shifted investor sentiment, with investors now optimistic about the prospects of AI-related growth.
  • Amazon was the outlier in the quarter's earnings, with its shares falling 7% following its earnings report, a reminder that sentiment around AI is fragile if growth slows and costs rise.
  • Analysts have warned that while the narrative has shifted, investors may sound the alarm again if the pipeline of demand for AI-related cloud computing slumps.
  • US, EU, and UK antitrust regulators are pursuing a barrage of monopoly lawsuits against the sector that could see the tech conglomerates broken up or opened to rivals.
  • Alphabet faces the biggest issues, having lost three consecutive antitrust cases brought against its search, advertising, and app store businesses.

Statistics:

  • Alphabet, Meta, and Microsoft collectively added more than $350bn in stock market value.
  • Microsoft became the second company to reach $4tn in market capitalisation.
  • Meta's shares rose 11% to just shy of $2tn.
  • Microsoft's cloud computing division reported a 50% increase in growth.
  • Meta's advertising margins rose 9% year-on-year.
  • Meta's price per ad rose 9% year-on-year.
  • Alphabet is on track to spend more than $200bn on AI infrastructure this year.
  • Microsoft is expected to spend $30bn on AI infrastructure this year.
  • Amazon is expected to spend $106bn on AI infrastructure this year.

Sources:

  • Company reports and earning calls.
  • FT calculations.
  • Bloomberg.
  • AllianceBernstein.
  • Jefferies.
  • Albert Bridge Capital.
  • Federal Trade Commission.
  • US, EU, and UK antitrust regulators.
  • Alphabet.
  • Meta.
  • Microsoft.
  • Amazon.
  • Nvidia.
  • Figma.
  • Apple.

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