As explained in an analyst note on Wednesday, the race to develop the computing power needed for artificial intelligence is seeing Big Tech spending, like that of Big Oil. Bernstein's researchers have aggregated the huge prices of his AI at Amazon (AMZN), Microsoft (MSFT), Alphabet (GOOGL), Meta (META), and Apple (AAPL).
“Guidance and commentary for Big Tech (Amazon, Microsoft, Google, Meta, Apple) is that more than $200 billion in capital spending (capex) will be deployed this year,” Bernstein's analyst team led by Mark Schmulik said. ” in a letter to customers. “If current estimates hold, total capital spending by Big Tech companies over the next four to five years will easily exceed $1 trillion.”
A “significant” portion of the new spending will be focused on AI, including new data centers, the memo said. Bernstein analysts added that total spending from Amazon stock and its affiliated tech giants will likely exceed the capital spending of the 90 other telecommunications and communications companies in the S&P 500 combined.
The memo added: “This is not the first time we have seen a group of five-sized incumbents spend heavily in an investment cycle.” “Total capital spending for Exxon (XOM), Chevron (CVX), Total (TTE), Shell (SHEL), and BP (BP) peaked in 2013 at $160 billion.”
Oil vs AI
Investors have been focused on generative AI for more than 18 months. Still, analysts at Bernstein acknowledged that “the scale of this investment cycle remains surprising.”
Bernstein analysts said oil is a commodity with “proven demand at known prices.”
“It is unclear whether there will be sufficient revenue growth to realize a positive ROIC (return on invested capital) for this AI investment cycle,” the memo said. “But if big tech companies don't invest, they are opening themselves up to disruption.”
Companies may reach overcapacity. But the report notes that the tech industry ended up growing to overcapacity in past investment cycles.
Amazon Stock vs. Meta Stock: Different Reactions to AI Spending
So far, investors have reacted differently to each company's investment plans.
“Google's investors rewarded the company and helped it win in AI,” Bernstein's memo said.
Meanwhile, “Meta investors were surprised by the length of investment cycles and recent PTSD over whether this is another Metaverse 2.0.”
However, Amazon and Microsoft were somewhere in the middle. Bernstein said that while investors are slow on spending, he sees a path to profitability through Amazon Web Services and Azure's cloud businesses.
Apple, on the other hand, stands out from other big tech companies. In fact, capital investment in the first half of FY2024 has decreased compared to the same period last year.
“By increasing its use of third-party data centers, Apple is effectively disbursing much of its AI investments through its income statement, with relatively low risk compared to its peers,” Bernstein analysts wrote. There is.
Apple may reveal more details about its AI plans at its developer conference on June 10th.
On the stock market today, Amazon stock is down 1.7% to 183.88 in recent moves. Microsoft stock rose 1% to 420.64. Recent movements have seen the meta rise slightly to 473.18. At last check, Apple was up 1.3% to 189.78 and Google was up 0.75% to 171.64.
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