Big Tech's AI spending spree worries investors

Zuckerberg says building a leading AI system will take several years and require significant investment

The biggest technology companies are doubling down on AI, pouring billions into research, development and infrastructure, but investors are growing restless as financial returns remain elusive.

Google, Microsoft and Meta all announced significant increases in AI spending during their earnings calls this week.

Meta raised expenditure forecasts in AI from $30 billion - 37 billion to $34 billion - 40 billion for the year.

CEO Mark Zuckerberg acknowledged the long road ahead, stating that building a leading AI system will take "several years" and require significant investment.

He attempted to reassure investors, insisting that the hefty investments in AI infrastructure, including data centres, chip designs, and research and development, would eventually pay off.

"Smart investors see that the product is scaling and that there is a clear monetisable opportunity there even before the revenue materialises," Zuckerberg said in a press release.

Responding to analysts' questions regarding Meta's recent launches of new AI models, Zuckerberg said he is now "more ambitious and optimistic on AI."

"So all of that basically encourages me to make sure that we're investing to stay at the leading edge of this."

The situation isn't unique to Meta as other tech giants like Alphabet (Google's parent company) and Microsoft have already signalled rising AI costs.

Google chief financial officer Ruth Porat said on Thursday that Google intends to invest approximately $12 billion or more each quarter this year in capital expenditures, with a significant portion earmarked for the construction of new datacentres.

"We're very committed to making the investments required to keep us at the leading edge," Porat said on a conference call.

Alphabet CEO Sundar Pichai described AI technology as "once-in-a-generation opportunity."

Microsoft CFO Amy Hood revealed that Microsoft's AI spending reached $14 billion in the last quarter, and is poised for a substantial increase going forward.

The recent developments highlight the growing tension between tech companies' long-term vision for AI.

Metaverse losses increase

For Zuckerberg, the massive investment in AI efforts comes as his ambitious bet on the metaverse is yet to deliver a financial return.

Meta said in its financial results that Reality Labs, the unit responsible for developing virtual reality (VR) technology and the nascent metaverse platform, saw $3.85 billion operating loss in the first quarter.

This came despite a 30% year-over-year increase in revenue, which still only represents a meagre 1% of Meta's total sales.

Since Meta began reporting the segment separately in late 2020, its total losses have ballooned to over $45 billion. However, Meta remains committed to the metaverse despite the mounting financial pressure.

Back in 2021, Zuckerberg famously rebranded Facebook as Meta, signifying his belief that the metaverse will be the next big frontier in computing. He envisions a digital world where users can work, play and socialise, all within a virtual environment. However, developing this technology remains a costly endeavour, and the path to profitability remains unclear.

Meta says it is pushing for an "open model" for VR headsets, allowing third-party manufacturers to use its Meta Horizon operating system.

Whether Meta's open approach can win over consumers and developers in the VR race remains to be seen. But one thing is certain: Zuckerberg's vision for the metaverse comes with a hefty price tag, and only time will tell if it will ultimately pay off for investors.