In the latest earnings season, the scale of Big Tech's investment in AI has become starkly apparent, with major players significantly ramping up their expenditures. Meta has increased its capital expenditures forecast to between $37 billion and $40 billion. Microsoft reported $19 billion spent last quarter, including server farm leases. Amazon has already allocated $30 billion this year, with plans to increase spending further in 2024. Apple, while diverging slightly, also has a renewed focus on AI.
Generative AI is being touted as the next transformational technology, comparable to the smartphone and the internet. This belief has driven companies to engage in a high-stakes spending race to build AI capabilities.
However, there are questions about whether the massive spending is shaping the belief in AI's potential. The stakes are now so high that even if generative AI fails to meet expectations, companies and their clients might still integrate it into products and processes unnecessarily.
The tech industry has seen numerous "transformational" technologies that failed to deliver, such as Amazon's Alexa, which a former senior employee described as little more than a "smart timer." Similarly, Apple spent $1 billion annually on a high-profile vehicle project before abandoning it earlier this year.
For companies like Alphabet, Meta, Microsoft, and Tesla, AI is central to their investment pitch. They are motivated to make it work and quickly. Sequoia Capital's David Cahn described the situation as a "cycle of competitive escalation," suggesting that the companies might act more rationally if not for the intense competition.
Investors' reactions indicate a potential period of adjustment. Microsoft's earnings caused some impatience, while JPMorgan's Doug Anmuth noted that Meta continues to justify its heavy spending on generative AI. Anmuth highlighted Meta's goal for its AI assistant to become the most used by the end of 2024 and the support from the open-source Llama 3.1 in accelerating innovation.
The narrative of AI as a transformational technology will persist, driven by the enormous investments being made. As long as the checks keep flowing, so will the claims of AI's revolutionary potential.
