Big Tech keeps spending on AI data centers despite weak returns

In short: Amazon, Microsoft, Alphabet, and Meta say they will keep spending huge sums on AI data centers, even though profits are still unclear.

What's going on

Amazon, Microsoft, Alphabet (Google’s parent), and Meta used their recent quarterly earnings calls to tell investors they still plan to spend heavily on AI infrastructure. Infrastructure here mostly means data centers, which are large buildings filled with computers that power online services (like a factory for computing).

Together, the four companies said they expect to spend at least $720 billion this year on capital expenditures, which is money used to build or buy long-term equipment like servers and buildings. The Verge reports this is on top of at least $1 trillion in spending commitments already lined up for future years.

Investors reacted nervously last week, and major tech stocks sold off. Alphabet took a particularly hard hit after it discussed how its AI features could reduce ad earnings in the short term. An Alphabet executive said growth in “AI Mode” searches is bringing in less money than regular search, and Search ad growth slowed to 12% in the quarter, down from 17% a year earlier. Alphabet shares fell 13% in a single day, according to the report.

Microsoft stood out as the one company that avoided the worst investor backlash, but it still moved to raise money. The report notes Microsoft completed a $25 billion bond sale after its earnings call.

What to watch

Two forces could shape what happens next. One is whether these AI data centers start paying off soon enough to satisfy investors. The other is regulation, since some newly elected candidates support pauses or limits on new data centers, which could slow construction.

Source: The Verge AI