This Week's Earnings Reports from MS, Meta, Amazon, and Others Expected to Be Reviewed
"The risk of underinvestment is dramatically greater than the risk of overinvestment. (Sundar Pichai, CEO of Alphabet)"
As questions grow about when the profitability of the astronomical investments in artificial intelligence (AI) will become visible, attention is focused on the moves of big tech companies. Following Google Alphabet, which reaffirmed its commitment to continue investing despite so-called 'AI bubble' concerns, Microsoft (MS), Meta Platforms, Amazon, and others are also set to release their earnings this week. It is expected that more details regarding AI investments will be revealed at these events.
The Economist reported on the 28th (local time) referencing CEO Pichai's remarks on AI investment during Alphabet's earnings conference call last week, stating, "CEO Pichai is not alone." At that time, CEO Pichai explained plans to build additional AI data centers to expand the cloud computing division, emphasizing that overinvestment is much better than underinvestment. Alphabet's capital expenditure this year is expected to increase by about 50% from the previous year to $48 billion, with most of it allocated to AI-related investments.
CEO Pichai's comments attracted attention amid the recent spread of bubble concerns around AI investments both inside and outside Wall Street. Earlier, Goldman Sachs expressed doubts in a report last month about whether hyperscalers such as MS, Alphabet, Meta, and Amazon, which have spent enormous amounts on capital expenditures and research and development (R&D) over the past four quarters, can justify these costs with AI-driven revenues in the future.
Barclays also pointed out the AI data center investment competition among cloud computing companies as a FOMO (Fear Of Missing Out) trend. Similar to how companies massively installed fiber optic cables during the dot-com boom, big tech companies are pouring excessive resources into AI infrastructure. Jefferies predicted that it is still too early to expect AI to deliver earnings benefits and that tangible results might only be seen from 2025 to 2026 at the earliest.
This explains why Alphabet's stock price plunged sharply despite revealing better-than-expected surprise quarterly results last week. The market expressed concerns about the uncertainty of when profits will materialize while Google continues to invest heavily in AI technology development. Investors who were enthusiastic about the AI rally have started to crunch the numbers. The day after Alphabet's earnings announcement, the Nasdaq index dropped nearly 4%, marking its largest decline since October 2020.
However, as confirmed by CEO Pichai's remarks during the earnings conference call, there are ongoing expectations that major big tech companies' AI investments will not easily decrease. These big tech firms cannot ignore the risk of losing the entire market given the massive costs already invested. The reason CEO Pichai added, "If you don't invest to stay ahead, much worse negative outcomes can occur," right after mentioning the risks of underinvestment, stems from this background.
The situation is no different for other companies. According to the economic media CNBC, Meta CEO Mark Zuckerberg recently appeared on a podcast and pointed out, "If you fall behind in the investment race, you will not be able to secure the most important technology for the next 10 to 15 years." The media reported, "Companies have entered an arms race forcing more spending. Executives from Meta, Alphabet, and others admitted that their companies might be spending too much on AI infrastructure," but also noted, "However, they say the risks of investing less are greater."
This trend is expected to be more concretely confirmed in the upcoming earnings announcements of MS, Meta, Amazon, and others this week. The Economist diagnosed, "Big tech companies have little intention of reducing investments," and reiterated, "CEO Pichai is not alone." According to New Street Research, the combined spending by Alphabet, Amazon, Meta, and MS on AI data center construction this year is estimated at $104 billion. Including AI investment expenditures by smaller tech companies and other industries, AI data center-related investments from 2023 to 2027 are expected to reach $1.4 trillion.
The Economist reported that after investigating about 60 companies related to the AI supply chain, the average stock price of these companies rose 106% compared to early 2023, evaluating that all this attention is further fueling the investment frenzy. It also pointed out growing threats to the AI supply chain, citing excessive dependence on Nvidia, supply bottlenecks arising from power availability, and concerns about demand decline amid excessive infrastructure investments as specific threats. Despite last week's stock price decline, the media stated, "Market expectations remain bullish," and emphasized, "For these expectations to be met, AI tools must rapidly improve and companies must adopt them en masse."
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