Major technology companies, including Microsoft, Meta, and Amazon, are accelerating their investments in artificial intelligence (AI) infrastructure despite concerns that the significant capital expenditures could impact their short-term profitability.
The tech giants are pouring billions into building out AI data centers to meet the growing demand for AI services. Microsoft and Meta reported increased capital expenses due to their AI investments, while Amazon warned of higher capital expenditures for the foreseeable future to support AI software development. Alphabet also indicated that its expenditures on AI infrastructure would remain elevated.
Financial Implications
The extensive spending on AI infrastructure could threaten the companies’ profit margins and pressure their profitability, potentially spooking investors. Shares of Meta and Microsoft fell 4% and 6%, respectively, despite both companies exceeding profit and revenue expectations for the July-September period. Amazon’s shares dropped 3.4% but recovered after the company reported better-than-expected third-quarter results.
“It’s costly to run AI technology. Getting capacity is expensive,” said Beatriz Valle, an analyst at GlobalData. “It has become a competitive race among the big tech companies to build out capacity. It’s going to take time to see the returns, to see widespread adoption of the technology.”
Amazon’s CEO, Andy Jassy, described AI as a “maybe once-in-a-lifetime type of opportunity” during a call with analysts. The company’s capital expenditure is expected to reach around $75 billion this year, up from $48.4 billion last year, with further increases anticipated in 2025.
Capacity Constraints and Future Outlook
The rapid growth in AI demand is constrained by supply chain limitations, particularly in the availability of AI chips. Nvidia, a leading AI chipmaker, is struggling to keep up with demand, affecting the ability of cloud companies to expand their capacity. Advanced Micro Devices (AMD) also reported that demand for AI chips is outpacing supply, warning of tight chip supplies going into next year.
Despite these challenges, Meta and Microsoft remain optimistic about the long-term potential of AI. Meta CEO Mark Zuckerberg emphasized that building out AI infrastructure is a significant opportunity, even if it doesn’t align with investors’ short-term expectations.
The investments in AI infrastructure echo the earlier cloud computing boom, where Big Tech companies invested heavily in cloud businesses before seeing widespread adoption. As Gil Luria, head of technology research at D.A. Davidson, noted, “For every year Microsoft overinvests… they’re creating a whole percentage point of drag on margins for the next six years.”
