Rising AI costs have contributed to the steepest drop in Big Tech stocks since before ChatGPT launch, Adrian Cox writes in his article on finews.first. What happened?
finews.first is a forum for authors to comment on economic and financial topics.
Alphabet’s capital expenditure doubled to $13.2 billion in the second quarter from the same period last year, which it says was «driven overwhelmingly» by infrastructure investments as the owner of Google goes full steam ahead on Artificial Intelligence (AI). Meanwhile, Tesla says the 39 percent jump in its operating expenses from a year earlier was «largely driven by AI projects» and that it has spent $0.6. billion on AI infrastructure in the second quarter.
Concern about a lack of much evidence that higher AI spending is translating into conspicuous returns helped trigger a near 6 percent average drop in the seven Big Tech stocks in the US, the day after Tesla and Alphabet reported earnings. That was their largest daily loss since September 2022, pre-history as far as generative AI is concerned before OpenAI’s ChatGPT went live in November of that year.
«Beyond the cloud, however, indications of returns are more qualitative than quantitative»
While tech firms are ramping up AI spending, revenue has so far been contained within the cloud business where companies train and run AI models. Indeed, Alphabet CEO Sundar Pichai says AI infrastructure and generative AI solutions «for cloud customers have already generated billions in revenues» so far this year.
Beyond the cloud, however, indications of returns are more qualitative than quantitative. Pichai added: «People who are looking for help with complex topics are engaging more and keep coming back for AI Overviews,» which give short AI-generated answers in addition to normal search results.
By relying on AI returns from cloud infrastructure, tech firms are counting on developers to continue to build and run ever more compute-hungry AI models. However, equity analysts think AI «could prove incremental to search revenue growth» for Alphabet as the company introduces ads to AI Overviews in the US.
«Whoever blinks for a second could risk falling light-years behind everyone else»
Tech firms are competing to lead the AI race because the high costs, scarce semiconductor resources, and speed of progress invest a zero-sum game. There is only likely to be space for a couple of champions. Whoever blinks for a second could risk falling light-years behind everyone else.
The fear of missing out is real. Pichai says «The risk of underinvesting is dramatically greater than the risk of overinvesting,» while also saying «We are relentlessly driving efficiencies in our AI models». Analysts have increased their full-year capex forecasts for Alphabet in their report here. Meanwhile, Tesla projects that AI training capacity will continue to increase throughout the year.
The sky is the limit for AI costs as companies push toward AI that they say will be not only more efficient but also generally smarter than humans. Anthropic CEO Dario Amodei has said that training an AI model could cost as much as $10 billion two years from now, compared with about $100 million currently.
Adrian Cox is a strategist at Deutsche Bank on the Thematic Research team currently focusing on the impact of Artificial Intelligence on jobs, the economy, and society.
Previous contributions: Rudi Bogni, Peter Kurer, Rolf Banz, Dieter Ruloff, Werner Vogt, Walter Wittmann, Alfred Mettler, Robert Holzach, Craig Murray, David Zollinger, Arthur Bolliger, Beat Kappeler, Chris Rowe, Stefan Gerlach, Marc Lussy, Nuno Fernandes, Richard Egger, Maurice Pedergnana, Marco Bargel, Steve Hanke, Urs Schoettli, Ursula Finsterwald, Stefan Kreuzkamp, Oliver Bussmann, Michael Benz, Albert Steck, Martin Dahinden, Thomas Fedier, Alfred Mettler, Brigitte Strebel, Mirjam Staub-Bisang, Nicolas Roth, Thorsten Polleit, Kim Iskyan, Stephen Dover, Denise Kenyon-Rouvinez, Christian Dreyer, Kinan Khadam-Al-Jame, Robert Hemmi, Anton Affentranger, Yves Mirabaud, Katharina Bart, Frédéric Papp, Hans-Martin Kraus, Gerard Guerdat, Mario Bassi, Stephen Thariyan, Dan Steinbock, Rino Borini, Bert Flossbach, Michael Hasenstab, Guido Schilling, Werner E. Rutsch, Dorte Bech Vizard, Katharina Bart, Maya Bhandari, Jean Tirole, Hans Jakob Roth, Marco Martinelli, Thomas Sutter, Tom King, Werner Peyer, Thomas Kupfer, Peter Kurer, Arturo Bris, Frederic Papp, James Syme, Dennis Larsen, Bernd Kramer, Armin Jans, Nicolas Roth, Hans Ulrich Jost, Patrick Hunger, Fabrizio Quirighetti, Claire Shaw, Peter Fanconi, Alex Wolf, Dan Steinbock, Patrick Scheurle, Sandro Occhilupo, Will Ballard, Nicholas Yeo, Claude-Alain Margelisch, Jean-François Hirschel, Jens Pongratz, Samuel Gerber, Philipp Weckherlin, Anne Richards, Antoni Trenchev, Benoit Barbereau, Pascal R. Bersier, Shaul Lifshitz, Klaus Breiner, Ana Botín, Martin Gilbert, Jesper Koll, Ingo Rauser, Carlo Capaul, Markus Winkler, Thomas Steinemann, Christina Boeck, Guillaume Compeyron, Miro Zivkovic, Alexander F. Wagner, Eric Heymann, Christoph Sax, Felix Brem, Jochen Moebert, Jacques-Aurélien Marcireau, Ursula Finsterwald, Michel Longhini, Stefan Blum, Zsolt Kohalmi, Nicolas Ramelet, Søren Bjønness, Gilles Prince, Salman Ahmed, Peter van der Welle, Ken Orchard, Christian Gast, Jeffrey Bohn, Juergen Braunstein, Jeff Voegeli, Fiona Frick, Stefan Schneider, Matthias Hunn, Andreas Vetsch, Fabiana Fedeli, Kim Fournais, Carole Millet, Swetha Ramachandran, Thomas Stucki, Neil Shearing, Tom Naratil, Oliver Berger, Robert Sharps, Tobias Mueller, Florian Wicki, Jean Keller, Niels Lan Doky, Johnny El Hachem, Judith Basad, Katharina Bart, Thorsten Polleit, Peter Schmid, Karam Hinduja, Zsolt Kohalmi, Raphaël Surber, Santosh Brivio, Mark Urquhart, Olivier Kessler, Bruno Capone, Peter Hody, Michael Bornhaeusser, Agnieszka Walorska, Thomas Mueller, Ebrahim Attarzadeh, Marcel Hostettler, Hui Zhang, Michael Bornhaeusser, Reto Jauch, Angela Agostini, Guy de Blonay, Tatjana Greil Castro, Jean-Baptiste Berthon, Marc Saint John Webb, Dietrich Goenemeyer, Mobeen Tahir, Didier Saint-Georges, Serge Tabachnik, Vega Ibanez, David Folkerts-Landau, Andreas Ita, Michael Welti, Fabrizio Pagani, Roman Balzan, Todd Saligman, Stuart Dunbar, Carina Schaurte, Birte Orth-Freese, Gun Woo, Lamara von Albertini, Ramon Vogt, Andrea Hoffmann, Niccolò Garzelli, Darren Williams, Benjamin Böhner, Mike Judith, Jared Cook, Henk Grootveld, Roman Gaus, Nicolas Faller, Anna Stünzi, Thomas Höhne-Sparborth, Fabrizio Pagani, Guy de Blonay, Jan Boudewijns, Sean Hagerty, Alina Donets, Sébastien Galy, Roman von Ah, Fernando Fernández, Georg von Wyss, Stefan Bannwart, Andreas Britt, Frédéric Leroux, Nick Platjouw, Rolando Grandi, Philipp Kaupke, Gérard Piasko, Brad Slingerlend, Dieter Wermuth, Grégoire Bordier, Thomas Signer, Gianluca Gerosa, Christine Houston, Manuel Romera Robles, Fabian Käslin, Claudia Kraaz, Marco Huwiler, Lukas Zihlmann, Sherif Mamdouh, Harald Preissler, Taimur Hyat, Philipp Cottier, Andreas Herrmann, Camille Vial, Marcus Hüttinger, Serge Beck, Alannah Beer, Stéphane Monier, Ashley Simmons, Lars Jaeger, Shanna Strauss-Frank, Bertrand Binggeli, Marionna Wegenstein, George Muzinich, Jian Shi Cortesi, Razan Nasser, Nicolas Forest, Joerg Ruetschi, Reto Jauch, Bernardo Brunschwiler, Charles-Henry Monchau, Philip Adler, Ha Duong, Teodoro Cocca, Jan Brzezek, Nicolas Mousset, Beat Weiss, Pascal Mischler, Andrew Isbester, Konrad Hummler, Jan Beckers, Martin Velten, Katharine Neiss, Claude Baumann, Daniel Roarty, Kubilay Yalcin, Robert Almeida, Karin M. Klossek, Marc Taverner, Charlie T. Munger, Daniel Kobler, Patrick Stauber, Colin Vidal, Anna Rosenber, Judith Wallenstein, Adriano Lucatelli, Daniel Goleman, Val Olson, Brice Prunas, Francesco Magistra, Frances Weir, Luis Maldonado, Francesco Magistra, Nadège Lesueur-Pène, Massimo Pedrazzini, Eric Sarasin, David Ellis, Dina Ting, Christopher Gannatti, Shaniel Ramjee, Mihkel Vitsur, Nannette Hechler-Fayd’herbe, Ralph Ebert, Chris Cottorone, Francesco Mandalà, Mariolina Esposito, Maryann Umoren Selfe, Dominique Gerster, Marc Arand, Christian Kälin, Nadège Dufossé, Benjamin Melman, Brigitte Kaps, Florin Baeriswyl, Marc Reinhardt, Thomas Holderegger, Beat Wittmann, Bruno Cavalier, Gary Burnison, and Louise Curran.
