Big Tech pouring money into AI but some investors worried

Big Tech pouring money into AI but some investors worried

NEW YORK
Big Tech pouring money into AI but some investors worried

As throat-cut competition heating up to get ahead of their rivals, Microsoft and Meta are spending big in developing AI technologies, some investors are asking if that much spending is worth it.

Microsoft delivered solid quarterly results on Oct. 30, beating analyst expectations with revenue jumping 16 percent to $65.6 billion, but questions were raised about the company's big spending on the AI boom.

The company has been at the forefront of the generative AI revolution, largely thanks to its partnership with OpenAI, the creator of ChatGPT.

Building and operating AI systems is costly.

Microsoft reported spending $20 billion over the quarter, mostly for its cloud computing and AI needs. That includes building energy-hungry computing centers and supplying them with specialized chips to train and run AI models.

The tech giant warned that its gross margin outlook for its crucial cloud division, or how much money it expects to make, was going to be lower just as its investment in AI infrastructure was set to grow.

The news sent Microsoft's share price down by nearly four percent in after-hours trading.

"Microsoft's latest earnings came in a bit above expectations, but the results may leave some investors wanting more clarity," said Emarketer senior director Jeremy Goldman.

"The true wildcard this quarter has been Microsoft's AI investments. It's pouring cash into building out infrastructure, with major capex implications. Yet, the revenue returns from AI remain more of a promise than a present reality," he added.

Facebook owner Meta also saw net income and revenues top expectations as the company said it would expand investments into artificial intelligence, drawing nervousness from investors.

The social media behemoth said net profit in the third quarter was $15.7 billion, up 35 percent on the same period last year.

But investors sent Meta shares lower in afterhours trading over the outlook for AI spending in the months ahead.

Meta is rushing into artificial intelligence as it tries to build revenue streams away from its social media core business.

On Oct. 30, Meta once again raised its capital investment outlook: for 2024 alone, it is forecasting a range of $38-40 billion, compared with $37-40 billion previously, much of it for AI.

Investors "were a little disappointed by the rising costs" said Jasmine Enberg of Emarketer.

"It's going to take longer time to pay off" than some had hoped, she added.

"Meta's solid revenue growth in the quarter will help stave off investor concern about its AI investments," said Debra Aho Williamson of Sonata Insights.

However, she warned, that the full impact of consumer facing AI "won't be felt until 2025 or beyond."