Is Big Tech’s AI Spending Becoming Too Big to Fail?

AI Spending Frenzy

There’s a spending frenzy around AI, and this earnings season we’ve been getting more details on the pace of that outlay.

Meta raised its capital expenditures forecast to the range of $37 billion to $40 billion. Microsoft spent $19 billion last quarter, including server farm leases. Amazon spent $30 billion so far this year and says it’ll kick it up a notch to close out 2024. Apple may be zagging, but clearly has a fresh AI focus of its own.

Generative AI: The Next Big Thing?

We’ve been told that generative AI is the next smartphone, the next internet — a transformational technology. That’s why these companies have ramped up spending in a generative AI-building arms race.

But is the spending also influencing that belief? Are the stakes now so high that even if the promise of generative AI doesn’t meet those lofty expectations, these companies, and their clients, will try to shoehorn it into products and processes where it’s not really needed?

Lessons from the Past

History is littered with “transformational” technologies that didn’t quite make the grade. Digital assistants, for example, like Amazon’s Alexa. The Wall Street Journal recently quoted a former senior employee as saying, “We worried we’ve hired 10,000 people and we’ve built a smart timer.”

Investors’ Reactions

The ensuing digestion period has already likely begun, if investors’ impatient reaction to Microsoft’s earnings is any indication. Meta, on the other hand, “continues to earn the right to spend big on GenAI,” wrote JPMorgan’s Doug Anmuth in reaction to its numbers.

As he pointed out, “Management continues to expect Meta AI to become the most used AI assistant by the end of 2024, & open source Llama 3.1 should support a faster pace of innovation, better social/advertiser experiences, & cost benefits.”