In an attempt to fulfil the enormous demand, big tech companies like Microsoft and Meta are increasing their expenditure to build up AI data centres, but Wall Street is desperate for a speedier return on the billions of dollars they have spent.
On Wednesday, Microsoft and Meta both reported that their investments in AI were increasing their capital expenditures. On Tuesday, Alphabet also stated that these expenses will continue on the higher end.
These predictions are probably going to be confirmed by Amazon, which is scheduled to release its results today after the US market closes.
The large capital expenditures may jeopardise these businesses' fat margins, and investors are likely to be alarmed by pressure on this indicator.
Wednesday's after-hours trading saw a decline in big tech shares, underscoring the difficulties the businesses are facing in striking a balance between their aspirational AI goals and the need to persuade investors that they are only concerned with immediate outcomes.
According to Visible Alpha, Microsoft's capital expenditures for a single quarter now exceed its yearly expenditures until fiscal 2020. Up to 2017, Meta's expenditures for a quarter were comparable to its annual expenditures.
Microsoft's first fiscal quarter capital spending jumped 5.3% to $20 billion, and the company expects to spend more on AI in the second quarter.
However, it cautioned that growth at its main cloud company, Azure, is probably going to slow down, citing capacity issues at its data centres as the reason.
In the meanwhile, Meta forewarned of a "significant acceleration" in infrastructure costs associated with AI in the upcoming year.
The tech sector is feeling the effects of capacity limitations
The inability of chipmakers, such as industry titan Nvidia, to keep up makes it more difficult for cloud providers to expand their capacity.
According to Advanced Micro Devices' observations earlier this week, the company's ability to capitalise on the order spike was limited since demand for AI chips was growing far faster than supply. It issued a warning that there will be a shortage of AI chips in the upcoming year.
Despite the worries, Microsoft and Meta stressed the long-term promise of AI and stated that it was still extremely early in the AI cycle.
The expenditures bring back memories of Big Tech's early days of building cloud companies and waiting for consumers to adopt the technology.
(Sources: investing.com)
