As AI spending surges, investors say: Show us the returns
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Illustration: Sarah Grillo/Axios
What did investors take away from the four Big Tech companies reporting earnings late Wednesday? If you're going to spend big on AI, you better have the growth to justify it.
Why it matters: Investors are over CEOs hyping AI and ready for CFOs to start explaining the return on their AI spending.
Driving the news: Google parent Alphabet, Microsoft, Amazon and Facebook parent Meta all announced plans Wednesday to increase spending on their AI buildouts this year, enormous outlays of cash that could total as much as $700 billion.
- The four companies have already spent in the first three months of the year three times what the Manhattan Project cost to develop atomic bombs, the New York Times reported.
Zoom in: The spending sprees came with different stories, however.
- Alphabet reported an 81% increase in profits, and its AI tool Gemini for enterprise's active user base grew 40% quarter over quarter. Its shares surged 4% in after-hours trading.
- Meta, meanwhile, raised its estimate range for capital expenditure to as much as $145 billion from $135 billion, yet its guidance for revenue was only in line with investors' expectations. Its shares fell more than 6%.
- Microsoft broke out its AI-specific revenue, saying it was up 123% year over year.
Between the lines: Investors want more of what Microsoft and Alphabet delivered: fundamentals that show how the investment in AI is paying off in revenue.
- Meta did not break out AI-specific revenue contributions.
Threat level: Spending on AI shows no signs of slowing any time soon.
- Memory is getting more expensive due to shortages, and even as chips get more efficient, companies have to buy the newest ones to keep up.
- While that's great news for chip giant Nvidia, it's unclear when that cycle ends or when AI will be profitable enough that it won't matter.
Yes, but: The four companies also put up double-digit growth across multiple lines of business.
- Some of that serves as moats that allow those businesses to continue to bet big on their AI ambitions.
The bottom line: Get ready to break out AI-related returns on the next quarterly call or be prepared to face the wrath of investors.
