Tech earnings season is in full swing, and while a few notable players have yet to report, namely Apple (AAPL) and Nvidia (NVDA), there’s one key thread in the announcements so far: It takes a lot of money to make it. money in AI.
Amazon (AMZN), Google (GOOG, GOOGL), Meta (META) and Microsoft (MSFT), four of technology’s biggest AI players, each highlighted growth in AI sales, albeit without many details, at the same time. time they pointed to increased spending on capital expenditure to meet AI demand.
Microsoft announced last week that it spent $14 billion on capital expenditures tied to building AI in the fiscal third quarter, up from $7.8 billion in the same period last year. The company’s capital expenditures in 2024 have already eclipsed spending for all of 2023, and there is still one more quarter left in the fiscal year.
Google parent Alphabet said it spent $12 billion last quarter and will continue at that pace for the rest of the year. Meta similarly said it is increasing spending for the full year from $30 billion to $37 billion to $35 billion to $40 billion. And CFO Susan Li said that number will also increase next year.
And on Tuesday, Amazon said it would surpass last year’s $48.4 billion in capital expenditures, saying the $14 billion spent in the first quarter will be the lowest amount for the year.
There are mountains of money. And while there are early signs that AI is driving revenue growth, it will be some time before it actually has an impact on companies’ bottom lines.
“I think it’s a 12- to 18-month investment period before we start to see a lot of this actually pay off,” TECHnalysis founder and chief analyst Bob O’Donnell told Yahoo Finance.
Testing the waters of AI
Generative AI is still a relatively new technology. Sure, it exploded in 2023, but companies are slow-moving entities and many are just beginning to experiment with generative AI applications in their business segments.
“If I sign up for Microsoft 365 with Microsoft, do I sign up all 100,000 of my employees or do I sign up 500 to check it out?” O’Donnell asked, adding that companies are starting with smaller enrollments to get a sense of how they can best use AI applications at work before enrolling the rest of their employees.
This isn’t necessarily bad for technology companies. During its earnings call last week, Microsoft said AI was responsible for 7 percentage points of revenue growth in its Azure and other cloud services businesses. This represents an increase from 6 percentage points in the previous quarter and 3 percentage points in the previous quarter. In the fourth quarter of last year, the company said AI drove 1 percentage point of growth in Azure.
And while it may seem like growth is falling precipitously, Microsoft CFO Amy Hood said this was more the result of a lack of available AI capacity. In other words, Microsoft didn’t have the resources necessary to meet customer demand.
Google CFO Ruth Porat noted a similar increase in AI sales during her company’s earnings call, saying that Google’s Cloud Platform has seen increasing revenue contributions from AI, although she did not provide an exact number.
For Amazon’s part, CFO Brian Olsavsky said customers continue to sign up for larger and longer business engagements for Amazon Web Services, with many adding generative AI components.
Spending Won’t Slow Down Anytime Soon
It may take a year or more to start seeing AI-based revenue growth really take off, but that doesn’t mean companies will cut back on spending. According to Forrester analyst Rowan Curran, companies have been investing money in AI technologies for years; Generative AI has just supercharged that spending.
“We’ve seen enormous growth and investment over the last…years and 18 months, but this has been a continuous increase over the last, I would say, eight or 10 years,” he said.
And technology companies are preparing investors for the long road ahead. During Meta’s earnings call last week, CEO Mark Zuckerberg attempted to assuage concerns that the social media giant will need to invest money in its AI efforts, though it fell on deaf ears as shares fell 14% in the quarter. morning after the announcement.
Hood, for his part, said Microsoft will continue to drive AI spending, with levels likely on par with the company’s fiscal year 2025, just as it was throughout fiscal year 2024.
Olsavsky offered a similar perspective for Amazon, saying the company will invest money in generative AI services.
“We will be significantly increasing our investment and the majority of that will be… to support AWS infrastructure and specifically generative AI efforts,” he said during the company’s earnings call.
Now companies just need to prove that all this spending is paying off and provide the corresponding numbers.
Email Daniel Howley at dhowley@yahoofinance.com. Follow him on Twitter at @DanielHowley.
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