There could be a total capital investment of $1 trillion in AI infrastructure over the next several years. Already billions of dollars have sunk into Big Tech companies trying to create AI infrastructure. Still, what is awaited are the big sales to justify these investments.
Wall Street has been disappointed on this count. Google’s shares have fallen by approximately 6 per cent and Microsoft shares too have declined since its own results.
2024 is considered to be a year for generative AI. Generative AI’s mass adoption should result into meaningful profits of Big Tech. However, the returns are not yet seen. It raises concerns about the worth of AI.
No doubt, the technology offers an enormous opportunity. And as time advances, the opportunity grows bigger. That results into greater investments. However, will these investments lead to an increase in profits?
It requires just-one winning product that could justify the massive investments. Google, Microsoft and Amazon have shown healthy pace of growth in cloud computing. Cloud computing grows on account of AI since it requires huge computational resources. However, these gains are insufficient to satisfy the investors. The returns fell shy of analysts’ expectations.
Amazon spent in capital investment $30.5 billion, mostly in AWS cloud in the first half of the year. It wants to build capacity so as to meet future demand without affecting profits. Google’s cloud investment growth could be seen, but how much of it could be attributed to investment in AI is not sure. Capital expenditures overshadow better-than-expected sales. Microsoft too disappoints. It declares that Azure’s growth to the extent of 8 per cent could be attributed to AI. (In previous quarter, it was 7 per cent). Can this growth justify heavy capital expenditure?
Facebook is the hero in this scenario. It has raised its capital expenditure, citing AI investments. However, it shows improvements in ad targeting and content recommendations. Face book’s high spending on AI is a short-term sacrifice for long-term gain. Apple too is powering its handsets with AI to overcome slow sales in China.