By John Towfighi, CNN
New York (CNN) — Wall Street wants more proof that Big Tech’s enormous spending on artificial intelligence will pay off.
The largest US tech companies are on a spending spree to try and get ahead in the AI race. Amazon (AMZN), Alphabet (GOOG), Meta (META) and Microsoft (MSFT) continue to spends hundreds of billions of dollars on building out infrastructure to power the AI boom.
The four companies are collectively set to surpass $700 billion in spending on AI this year as they compete to becomes leaders in the industry.
But now, investors are scrutinizing spending plans that don’t have tangible results. It’s been a shift in the making as spending on AI has skyrocketed in recent years.
Wall Street last week got a look at the companies’ first quarter earnings. The market reaction underscored the scrunity: Alphabet shares jumped 10% after the company reported earnings. Meanwhile, Meta shares sank almost 9% after the company reported earnings.
Alphabet announced plans to raise its AI spending, but also exhibited an ability to monetize AI through ad revenue and demand for cloud contract services, with a backlog of deals valued at $460 billion, according to the company’s earnings results.
Meta also announced plans to raise its spending on AI by at least another $10 billion. But Meta didn’t display the same evidence of it paying off. Meta doesn’t have a cloud business like Alphabet or Microsoft, leaving it without that revenue stream.
Wall Street is now looking for clear AI winners and losers, as opposed to betting the rising tide will lift all boats.
“Looking ahead, careful selection in tech remains critical,” Seema Shah, chief global strategist at Principal Asset Management, said in a note.
Alphabet shares are up nearly 40% this year, making it the second most valuable company after Nvidia (NVDA). Meta shares are down 7% this year.
The onset of the war with Iran roiled global markets, but focus has now returned to AI as companies like Anthropic and OpenAI compete to develop superior models, tech companies continue to build out infrastructure and semiconductor chip stocks soar.
Microsoft shares dropped 4% and Amazon shares gained less than 1% Thursday after the companies reported earnings Wednesday, underscoring that investors are becoming less patient about spending that doesn’t bring immediate returns.
Alphabet, Amazon, Meta and Microsoft make up more than fifth of the S&P 500’s market value, and Big Tech’s spending has been so large that it has boosted economic growth.
Six months ago, concerns about an AI bubble dominated conversations about the market. Resurgent interest in AI has just helped propel the S&P 500 to its best month since November 2020. The AI story remains intact, investors say, but whether the major tech companies can get returns from their spending will dictate investors’ resolve.
The-CNN-Wire
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