Investors showed impatience towards Big Tech's significant AI investments after Meta Platforms revealed deeper spending and a prolonged path to profitability in its quarterly report. Meta's stock dropped 15% in extended trading due to its forecast of increased AI spending for next year.
Following Meta’s announcement, Microsoft's stock fell by 2%, Alphabet's dropped by 3%, and Nvidia decreased by 1.4%. All eyes are on Microsoft and Alphabet as they prepare to report their quarterly earnings.
Big tech companies are fiercely competing to advance generative AI, which can produce text, videos, and photos from prompts. This technology is considered the next frontier in tech innovation.
During Meta's earnings call, CEO Mark Zuckerberg was questioned about the company's AI investments. Zuckerberg acknowledged Meta's growing ambition in AI, referring to their recent AI model launches. He stated, "I think we've gotten more ambitious and optimistic on AI."
Both Alphabet and Microsoft had previously indicated rising AI costs during their fourth-quarter reports. Analysts from New Street Research expressed concerns about potential higher capital expenditures for Alphabet, projecting it to be $45.9 billion for the full year.
Google launched Gemini, a model capable of understanding and creating various types of information, including text, audio, and video. However, generative AI content creation is energy-intensive, contributing to Meta's increased expenses.
Microsoft's partnership with OpenAI positions it favorably in the AI space. Jefferies analysts noted Microsoft's integration of chatbots into its Office products and planned investments in data centers.
Investors are now keenly observing revenue generation from AI investments. They are looking at pricing models and assessing whether customers find sufficient value in generative AI to justify its costs.
Jefferies analysts wrote, "Last year was spent dreaming of gen AI's potential. This year will be about moving forward with concrete steps." Investors are expecting tangible progress and revenue growth in the AI sector.
