The AI race has big tech spending US$344 billion this year

Business Times

2 days ago

[LONDON] If there's any lesson to take from the spending plans issued by the world's largest technology companies over the past two weeks, it's to never underestimate the fear of missing out.
Microsoft, which set a US$24.2 billion capital spending record last quarter, plans to drop upwards of US$30 billion in the current period. Amazon.com similarly spent US$31.4 billion last quarter, almost double what it dropped a year ago, and is maintaining that level of investment. Google owner Alphabet raised its capital expenditures guidance this year to US$85 billion.
Then there's Meta Platforms: The social networking giant lifted the low end of its forecast for 2025 capital expenditures and projected that costs will continue to grow at an even faster pace next year. Altogether, the four companies are expected to spend more than US$344 billion for the year, with much of it going to the data centres necessary to run artificial intelligence (AI) models.
'We have basically tripled capex investment in cloud due to AI,' Bloomberg Intelligence analyst Mandeep Singh said.
The emphasis from virtually every company executive during this earnings season was on investing as quickly as possible to get ahead. 'We need the teams to execute at their very best to get the capacity in place as quickly and effectively as they can,' Microsoft chief financial officer Amy Hood told analysts in a call on Wednesday.
Susan Li, Meta's CFO, said the goal of its own spend is to secure the advantage 'in developing the best AI models'.
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Wall Street's response has been mixed.
Meta was rewarded – in large part because the company posted a strong second-quarter sales beat and issued a rosy revenue forecast, signalling that the billions it's spending on AI are paying off. 'On advertising, the strong performance this quarter is largely thanks to AI unlocking greater efficiency and gains across our ad system,' chief executive officer Mark Zuckerberg said on an analyst call.
Zuckerberg has plans to build several massive data centres and has been luring top AI researchers with compensation packages valued at hundreds of millions of US dollars. The company recently restructured its internal AI division, now referred to as Meta Superintelligence Labs, in an effort to build human-level AI capabilities and apply that technology across its products.
Shares of the company have gained more than 8 per cent since it reported earnings on Wednesday.
Amazon, on the other hand, failed to convince investors that its lavish spending has been worth it. The stock was down as much as 8.1 per cent on Friday after the company reported tepid sales from its cloud division. The results were 'especially disappointing' given the strong performance from Google's and Microsoft's own cloud services, according to Bloomberg Intelligence (BI).
And the ongoing capital costs will not help. The operating margin for Amazon's cloud unit will continue to face pressure 'through 2026 as capital spending ramps up', BI analysts Poonam Goyal and Anurag Rana said.
Alphabet's shares are essentially unchanged from last week when it reported earnings and issued guidance. The company raised its capital expenditures outlook by US$10 billion and expects to ramp up spending even more in 2026. chief executive officer Sundar Pichai explained that the investments are necessary to keep up with customer demand.
'Obviously, we are seeing strong momentum across our portfolio, and especially in cloud,' Pichai told analysts in a call on Jul 23. 'It's a tight supply environment, and we are investing more to expand.'
Nikhil Lai, an analyst at Forrester, put it another way: If Google wants to keep up with rivals, he said, it has little choice but to follow suit: 'Google's hand is forced by OpenAI to spend tremendously on AI's infrastructure and applications.'
Microsoft tied its AI investments directly to a 39 per cent jump in sales for its Azure cloud-computing division, which came in ahead of analysts' estimates. 'We continue to lead the AI infrastructure wave and took share every quarter this year,' chief executive officer Satya Nadella said in a call with analysts on Jul 30.
'In Microsoft's case, the returns are good,' Gil Luria, an analyst with DA Davidson, said. The only question now is whether Microsoft's customers are in turn seeing a decent return on investment, he said. 'That's where the test will be,' he said. 'If they don't, they are not going to increase that spend next year.'
Apple's capital plans pale in comparison to its big tech peers. But the iPhone maker did raise its spending estimates, tying much of the increase to AI efforts. Apple's property, plant and equipment investments totalled US$9.47 billion in the nine months ended Jun 28, up nearly 45 per cent from a year ago.
'You are going to continue to see our capex grow,' chief financial officer Kevan Parekh told analysts on Thursday. 'It's not going to be exponential growth, but it is going to grow, substantially. And a lot of that's a function of the investments we are making in AI.' BLOOMBERG