Tech's AI message to Wall Street: Stop fretting
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Illustration: Sarah Grillo/Axios
Big Tech's message to investors on back-to-back earnings calls this week was "Stop worrying about the billions we're spending on AI — everything's going to be just great."
The big picture: Over the past month, Wall Street began questioning the growing cost of buying high-end chips and building data centers, asking when these investments would start to show up in revenue and profit growth.
- Google, Microsoft and Meta, each in different ways, told Wall Street to relax.
By the numbers: These companies all continue to grow and remain jaw-droppingly profitable, providing an enviable financial foundation for their most ambitious dreams.
- Last week, Google parent Alphabet reported $24 billion net profit on $85 billion revenue.
- On Tuesday Microsoft reported $22 billion net profit on $65 billion revenue.
- On Wednesday Meta reported $13.5 billion net profit on $39 billion revenue.
Apple and Amazon — the two tech giants that aren't as directly in the "build the biggest and best foundation model" race but are both making their own significant AI investments — are no slouches, either.
- On Thursday Apple reported $21 billion net profit on $86 billion revenue.
- The same day, Amazon reported $13.5 billion net profit on $148 billion revenue.
Remember, all these numbers are for a single quarter — multiply by four for a very rough annual picture.
Follow the money: When an industry is geysering profits like this, shareholders can try to demand higher dividend payouts. Tech firms have traditionally shunned dividends as a mark of corporate old age, but some of the giants, like Apple, have warmed up to them.
- The other thing you can do with profit rivers and the cash reservoirs they build is plow them into the Next Big Thing — and for now, most investors seem happy to let CEOs take that approach.
Between the lines: Wall Street has already given all these companies massive valuations based on their current businesses and their long-term prospects.
- As with previous platform shifts in tech, though, the AI wave could crown new winners and drown current leaders.
CEOs hastened to reassure investors that the best is yet to come, and that their incumbent firms are well-positioned to control the future.
- AI will improve "almost every" existing Meta product and "make a whole lot of new ones possible," Meta CEO Mark Zuckerberg said on his call Wednesday. "So it's why there are all the jokes about how all the tech CEOs get on these earnings calls and just talk about AI the whole time. It's because it's actually super exciting."
As for doubts about the wisdom of plowing so many billions into "capex" (capital expenditures) to build AI capacity, Microsoft CEO Satya Nadella said the company is carefully tuning into the "demand signals" from customers.
- Those signals — like massive growth in use of GitHub Copilot, which is now a bigger business than GitHub itself was when Microsoft acquired it in 2018 — are flashing green, Nadella said.
- Executives also argued that if they overbuild data centers and buy more servers than the AI buildout ultimately needs, the companies will find other good uses for that infrastructure.
The bottom line: "When you go through a curve like this, the risk of underinvesting is dramatically greater than the risk of overinvesting for us here," Google CEO Sundar Pichai told analysts last week.
