Facebook's parent company Meta, Microsoft, and Google's parent company Alphabet expect a combined capital expenditure of $228 billion in 2025, driven by their investments in artificial intelligence infrastructure. This is 55% more than the approximately $150 billion the companies reported spending in 2024, UNN writes with reference to Yahoo Finance.
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Tech giants claim that all these costs will pay off in the long run. Investors are not so sure. Uncertainty about payback periods-along with debates about whether such high levels of spending are truly justified-continue to fuel fears with each earnings cycle.
The higher-than-expected capital expenditures of companies for the year became known just as investors are scrutinizing Big Tech's large expenditures on artificial intelligence.
An illustrative example: DeepSeek. The Chinese startup stunned markets last week when it debuted open-source AI models competitive with OpenAI at a fraction of the price. Shares of tech companies sold off in all directions as the model called into question the validity of tech giants' gigantic spending on AI infrastructure.
The DeepSeek surprise does not seem to have affected the big spending plans of tech companies.
Last week, Meta confirmed that it will spend between $60 and $65 billion in 2025, significantly more than its previous forecast for investors of $38 to $40 billion a year. CEO Mark Zuckerberg said that the company will eventually spend "hundreds of billions of dollars" on "long-term investments in AI infrastructure." This includes investments in the construction of large data centers, such as the construction of a new facility in Louisiana almost the size of Manhattan.
On Tuesday, Google said it plans to spend $75 billion this year, about 30% more than Wall Street expected, according to LSEG. Alphabet shares fell 7% after the announcement.
Investors have been wary of Microsoft's spending as its AI services struggle to gain momentum.
The company's nearly $56 billion in fiscal 2024 spending (for the year ended June 31), including on AI - combined with lower-than-expected AI-related revenue - sent shares tumbling after last summer's results.
When asked how Meta is monetizing AI, the company's answer was more or less "spend now, worry later." Meta CFO Susan Lee said in a call after the earnings report on January 29: "Our initial goal for Meta AI is really to create a great consumer experience, and frankly, that's where all of our efforts are focused right now.
"I think there will eventually be some pretty clear monetization opportunities, including paid recommendations and premium offerings, but that's not what we're focused on right now in terms of developing Meta AI," she added.
Meta shares rose after the earnings report despite the lack of clarity as the company pointed to the rapid adoption of its AI tools for advertisers, which has increased to 4 million from 1 million six months ago. Lee said: "Meta AI usage continues to scale with more than 700 million monthly active users.
JPMorgan's Doug Anmuth said that "the return on investment in AI is more evident in Meta's core advertising business" than in Google's.
Google CFO Anat Ashkenazy said that the company's cloud segment "generates billions in annual revenue from AI infrastructure and generative AI solutions," but did not provide details. Ashkenazi added that the demand for its Cloud AI products is outstripping capacity. Google declined to answer questions about AI revenues.
Meanwhile, in its latest quarterly earnings report, Microsoft said that its total AI business, which includes Azure AI services as well as other Copilot and generative AI offerings, exceeded the annualized revenue level of $13 billion for the period ended December 31. Microsoft said that artificial intelligence contributed 13 percentage points to Azure's revenue growth, which was up 31% year-over-year. Microsoft's AI revenue is partly driven by OpenAI's commitments. OpenAI's own path to monetization is unclear, with the AI startup estimating that it will lose $5 billion in 2024, generating only $3.7 billion in revenue.