AI spending eating away tech giants’ profit; Meta signals long road to profitability

Meta’s upcoming quarterly earning: AI spending Investor confidence in Big Tech's AI ventures wavers this week as Meta Platforms signal prolonged spending and a distant path to profitability. Meta's quarterly report, released late Wednesday, triggered a 15 per cent decline in its stock during extended trading as it outlined plans for increased AI investment next year. This announcement cast a shadow over forthcoming quarterly earnings reports from Microsoft and Alphabet, both of which are expected to reveal rising AI expenditures.

The market reaction reflects growing concerns about the escalating costs associated with advancing generative AI, a technology capable of autonomously generating text, videos, and images. During Meta's earnings call, CEO Mark Zuckerberg fielded inquiries about the company's AI investment strategy, noting a heightened ambition and optimism in the field. Alphabet and Microsoft had previously hinted at mounting AI expenses in their fourth-quarter reports, setting the stage for Wednesday's apprehensive response from investors.

Analysts at New Street Research underscored these apprehensions, revising their estimates for Alphabet's annual capital expenditures upwards to $45.9 billion, citing the intensifying race in generative AI. Google's recent release of Gemini, a versatile AI model capable of comprehending and creating various forms of content, further underlines the competitive landscape. However, the energy-intensive nature of generative AI, as highlighted by Zuckerberg, indicates the financial burden faced by companies like Meta.

Meanwhile, Microsoft's collaboration with OpenAI has positioned it favourably in the AI arena. Using partnerships and integrating AI capabilities into its suite of Office products, Microsoft aims to capitalise on the evolving demands for AI-driven solutions. However, as Jefferies analysts note, the focus is shifting from speculation to tangible results, with shareholders increasingly scrutinising revenue streams and the viability of generative AI applications.

(With Reuters inputs)