Big Tech Is Facing Down a Major Problem With Its AI Plans

Quelle surprise.

Money Business

The AI industry is still struggling to reassure investors that the unfathomable billions of dollars it's pouring into the tech will be worth it in the end.

As Reuters reports, Microsoft and Meta admitted this week that capital expenses would remain on the rise as they rush to meet AI demand by building out data center capacity.

The shares of both fell on Wednesday, highlighting an inconvenient reality for AI-crazed tech outfits: that tech companies have yet to turn generative AI into a meaningful source of revenue despite spending billions, and it's making investors increasingly nervous.

Major supply constraints caused by chipmakers struggling to meet big tech's insatiable appetite and massive running costs are compounding the issue.

"It's costly to run AI technology," GlobalData analyst Beatriz Valle told Reuters. "Getting capacity is expensive."

"It has become a competitive race among the big tech companies to build out capacity," she added. "It's going to take time to see the returns, to see widespread adoption of the technology."

Cash Course

The money fire is likely to continue at least for the near future, with Meta forecasting "significant acceleration" in AI-related infrastructure expenses this week.

The news had analysts concerned, with Meta's shares sliding almost three percent since the beginning of the week.

"Meta needs to prove that it can continue to cover its AI costs as they rise next year, and any weakness in its core ad business could make investors nervous as they continue to wait for a return on Meta’s bigger AI bets," Emarketer principal analyst Jasmine Enberg told Reuters.

According to Meta CEO Mark Zuckerberg, however, that's all part of the long-term plan.

"Building out the infrastructure is maybe not what investors want to hear in the near term, but I think the opportunities here are really big," a defensive Zuckerberg told investors during Wednesday's earnings call, as quoted by Reuters. "We're going to continue investing significantly in this."

Meanwhile, the companies actually benefiting from the massive increase in spending are cloud computing providers like Amazon and chipmaker Nvidia, the latter of which has cemented itself as the industry-leading source of AI chips.

Amazon surpassed estimates with its third-quarter earnings this week, causing shares to jump on Friday.

But when generative AI will become a meaningful revenue driver for tech giants like Microsoft and Meta remains an open question. It doesn't help that they're all still struggling with core aspects of the tech, from persistent "hallucinations" to a wave of copyright infringement lawsuits.

More on the AI industry: AI Researcher Slams OpenAI, Warns It Will Become the "Most Orwellian Company of All Time"