Investors are becoming increasingly skeptical about Big Tech’s significant investments in artificial intelligence (AI), a sentiment reinforced by Meta Platforms’ recent announcement of escalating spending and a prolonged timeframe for profitability. This disclosure has cast a shadow over Microsoft and Alphabet, both of which will release their quarterly earnings on Thursday.
In an extended trading session following Meta’s earnings report on Wednesday, Meta’s stock plummeted by 15% as the company projected higher AI spending for the upcoming year. In response, Microsoft’s stock declined by 2%, Alphabet’s by 3%, and Nvidia’s by 1.4%.
The tech industry giants have been fiercely competing to advance generative AI, which has the capability to create text, videos, and images based on prompts and is widely regarded as the next significant frontier in technology. Meta’s earnings call included numerous inquiries from analysts directed at CEO Mark Zuckerberg, seeking clarification on the company’s AI investment strategy and pace.
Zuckerberg acknowledged that Meta has become more optimistic about AI’s potential and cited the company’s recent introduction of new AI models as a result. He emphasized the importance of ongoing investment to maintain Meta’s position at the forefront of this technology.
Both Alphabet and Microsoft acknowledged rising AI expenses during their fourth-quarter earnings reports earlier this year. However, the recent investor reaction suggests growing unease. Analysts from New Street Research expressed concern about Alphabet’s potential for significantly increased capital expenditures ahead of its Thursday earnings release. The research firm has revised its estimate for Alphabet’s full-year capital expenditures to $45.9 billion, up from the previous estimate of $42.7 billion.
Google has been actively pursuing the generative AI race and has introduced Gemini, a model capable of comprehending and generating diverse content formats, including text, audio, and video. The energy-intensive nature of content creation using generative AI was cited by Zuckerberg as a contributing factor to Meta’s increased expenses.
Microsoft, on the other hand, has strategically positioned itself as a potential leader in AI through its collaboration with OpenAI, the organization that ignited the generative AI frenzy with ChatGPT last year. Jefferies analysts noted in a March 31 report that Microsoft has integrated chatbots into its Office suite and intends to increase investments in data centers.
Shareholders across the industry are now prioritizing the pursuit of revenue, exploring pricing strategies, and identifying practical applications to justify the costs associated with generative AI. “Last year was marked by visions of generative AI’s potential,” the analysts observed. “This year will be about taking tangible steps forward.”
