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 […]
Four of the world's largest tech companies – Amazon, Microsoft, Alphabet, and Meta – are on the hook for their data center plans, despite the fact that Big Tech's AI data center buildout has not yet yielded its promised returns. Amazon, Microsoft, Alphabet, and Meta revealed on their quarterly earnings calls that they plan to spend at least $720 billion in CapEx this year alone, on top of at least $1 trillion in spending commitments planned for the coming years.
The spending plans of Big Tech have spooked Wall Street, leading to a sharp selloff in tech stocks last week that has since tapered off as investors refocus on the upcoming midterm elections. However, these spending plans could change if voters elect candidates who favor moratoriums and other restrictions on data centers. Wall Street might see the new uncertainty surrounding data center regulation as a positive sign, as tech stocks have begun to rise again.
Despite the enormous spending, Big Tech companies have not yet made significant profits from AI. 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. However, top-line revenue growth alone may not justify the massive investments in AI.
Alphabet's senior vice president and chief business officer, Philipp Schindler, acknowledged that Google Cloud's revenue growth has come at the expense of its core Search business, as AI Mode queries have impacted monetization in AI Mode. Google's search ad revenue grew by only 12% in the third quarter, a decline from the 17% growth rate in the same quarter last year.
Alphabet plans to significantly increase its spending in 2027, with CFO Anat Ashkenazi confirming the company's intent to spend between $195 billion and $205 billion in capital expenditures this year. Amazon intends to spend "meaningfully more" in 2027 than its current $220 billion in capital expenditures, CEO Andy Jassy stated.
Meta is expected to spend between $135 billion and $145 billion this year, with financial institutions anticipating an increase in spending. Meta CEO Mark Zuckerberg highlighted the need to reduce compute costs for its agentic AI program, Muse, to ensure profitability.
Anthropic, an AI startup, disclosed a sharp increase in computing costs and net losses in its S-1 prospectus, with revenue growing to $17 billion in the quarter, a 1,000% increase from last year. However, compute costs amounted to $17.5 billion, just short of covering the impressive gains. Anthropic plans to invest nearly $900 billion in future compute and infrastructure costs, including building its own data centers.
Despite the significant investments, there is growing unease among investors about the expected return on investment for Big Tech's AI buildout. While revenue growth is impressive, it may not be enough to justify the massive spending, especially when considering the need for immediate returns in a world where spreading CapEx over a longer period may be more convenient.
Written by urgent.news from The Verge's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
