Big tech companies are investing billions in the AI arms race.
Big Tech companies (Amazon, Microsoft, Google, Meta, Apple) plan to spend $200 billion this year on purchasing and maintaining fixed assets such as real estate and equipment, according to a Bernstein research note.
Bernstein analysts said Big Tech spending on fixed assets (also known as capital expenditures or capital expenditures) could exceed $1 trillion over the next five years. The bulk of Big Tech's capital spending goes toward technology infrastructure, such as land, data centers, servers, and network equipment.
Over the next few years, these companies will focus their spending on the GPUs and data centers needed to support Big Tech's generative artificial intelligence ambitions.
“Although AI has been an investment theme for more than 18 months, the scale of this investment cycle remains surprising,” Bernstein analysts wrote in a note.
Mr. Bernstein's calculations show a sharp increase in spending at Big Tech companies, which have been cutting costs over the past two years by shedding real estate and other assets. Big tech companies have been spending about 10% of their annual revenue on capital spending in recent years. This percentage will jump to 14% or 15% in the next two years.
Analysts said the $200 billion that Big Tech companies are expected to spend this year is more than the S&P's next 90 carriers will spend on these assets next year.
This is not the first time that the industry's largest companies have increased capital spending all at once. Analysts said this level of “intensive spending” is similar to that of major oil companies such as Exxon, Chevron, Total, Shell and BP, which spent $166 billion in 2013.
Wall Street has long disapproved of Big Oil's massive spending. By the end of 2013, investors asked these companies to stop spending on megaprojects and return some of that money to shareholders.
Big Tech may not see such a backlash.
“If big tech companies don't invest, they are leaving themselves open to disruption,” Bernstein analysts wrote.
If companies prioritize hiring new employees for AI efforts rather than redeploying existing employees, Big Tech's profit margins in the coming years will be further squeezed by headcount and overhead. There is a possibility that
Analysts at Bernstein said that previous periods of big tech investments lasted one to three years, but this cycle could become even longer.
“We will probably hit an air pocket of demand at some point, but if AI really is the next internet, we expect investment intensity to remain high for a long time,” the analysts said. is writing.
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