In their earnings reports last week, the leaders of the world's four leading technology companies warned investors that capital costs would continue to rise, even sharply.

Since ChatGPT appeared in late 2022, global businesses have been racing to buy scarce high-end AI chips and build giant data centers to meet the demand.

All believe that huge investments will make future businesses more profitable than selling digital advertising, products and software today.

In a call with investors on October 31, Amazon CEO Andy Jassy called AI “an unusually large, once-in-a-century opportunity.” The company predicts spending $75 billion by 2024 to avoid missing out.

Microsoft Copilot Bloomberg
Microsoft's Copilot+ PC models are on sale at Best Buy. Photo: Bloomberg

A day earlier, Meta CEO Mark Zuckerberg pledged to increase investment in big language modeling AI, as well as other futuristic projects he sees as core to the company's future.

Meta’s capital expenditures could reach $40 billion this year. Alphabet’s capital expenditure budget, meanwhile, is higher than Wall Street estimates, with CFO Anat Ashkenazi saying the increase will be significantly larger next year.

Apple has also vowed to invest in AI, introducing new services like Apple Intelligence, but it pales in comparison to its industry peers.

Big Tech earnings were mixed last week. While Amazon and Alphabet surged on better-than-expected earnings, driven largely by cloud growth, Microsoft and Meta fell.

For Microsoft, the reason for the disappointing quarter wasn't that customers weren't willing to pay for the company's cloud and AI products, but that it wasn't growing its capabilities fast enough.

According to CEO Satya Nadella, demand is growing very strongly but data centers cannot be built overnight.

The Windows maker spent $14.9 billion in the third quarter, up 50% from the same period in 2023. Chief financial officer Amy Hood said Microsoft will try to address the data center supply problem.

Analysts are relatively optimistic that the company will soon resolve its data center supply woes. The problem has limited impact on the cloud division, while investments—particularly a large stake in OpenAI— “are planting the seeds of long-term success,” JPMorgan analysts wrote in a recent report.

Still, Wall Street's concerns about the spending spree won't go away anytime soon. Last week, Meta reported a $4.4 billion operating loss for Reality Labs, its division that makes augmented reality glasses and other devices.

Facebook's parent company is also spending heavily so that the Llama model can compete with Google and OpenAI.

During a meeting with analysts, Zuckerberg argued that investments in AI would improve the company's core business – selling ads on Facebook and Instagram.

Still, investors remain wary of any signs of weakness in advertising while waiting for Meta's larger AI ambitions to pay off.

Meta’s stock has risen 60% this year. Some analysts say Zuckerberg’s bet will pay off. “History is on his side,” Moffett Nathanson wrote in a report, “and investors have been taught that patience is a virtue.”

(According to Bloomberg, CNBC)