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Don’t expect tech giants to shut their checkbooks any time soon when it comes to AI.
That was one message from this week’s quarterly earnings reports as Meta, Microsoft, and Alphabet each forecast big spending on data center infrastructure and other AI-related expenses continuing into the coming year. Those numbers, as well as a predicted slowing of cloud growth at Microsoft, seemed to distract investors from earnings beats as Meta and Microsoft stocks dipped on Thursday.
But what else is new? Wall Street has been antsy about AI spending for months now, the companies have continued to post strong results bolstered by cloud and ad revenues, and execs have attempted to reassure investors that the returns will come eventually.
“This part of the formula around building out the infrastructure is maybe not what investors want to hear in the near term, that we’re growing it out,” Meta CEO Mark Zuckerberg said. “But I just think that the opportunities here are really big. We’re going to continue investing significantly in this.”
AI ROI: While executives conceded that many of the benefits of AI—outside of cloud demand—will come down the road, each company tried to highlight some tangible benefits the technology is offering their business operations today.
Alphabet CEO Sundar Pichai said more than a quarter of new code at Google is now AI-generated and “accepted by engineers.” Pichai claimed the company’s new AI Overviews in search are prompting users to ask “longer and more complex questions,” and Google SVP and Chief Business Officer Philipp Schindler said they were driving monetization, though he didn’t offer any numbers.
Zuckerberg claimed that AI-driven feed recommendations have led users to spend 8% more time on Facebook and 6% more on Instagram. He said the company also estimated that businesses that use image generation to create ads see 7% more conversions.
And Microsoft touted its new ability to create enterprise agents within Copilot, which let businesses do things like empower custom AI programs to write code or field customer service queries.
The road ahead: Microsoft said it expects its Azure cloud services would grow between 31% and 32% this quarter, below the 34% growth it reported for the past period. Microsoft CFO Amy Hood said the company doesn’t currently have the capacity to serve the demand for Azure services.
Meta CFO Susan Li told investors to expect “significant capital expenditures” growth next year due to new data centers and network infrastructure. The company said it will have spent between $38 billion and $40 billion on infrastructure by the end of the year.
“We expect a significant acceleration in infrastructure expense growth next year as we recognize higher growth in depreciation and operating expenses of our expanded infrastructure fleet,” Li said.
Google CFO Anat Ashkenazi said that the company would spend more on AI investment next year, too, though “likely not the same percent step-up” as the increase from 2023 to 2024.