To fund AI boom, tech plans plumbing upgrade
Microsoft, Meta and Google’s parent Alphabet are going to spend billions on infrastructure
If 2023 was the tech industry’s year of the AI chatbot, 2024 is turning out to be the year of AI plumbing. Tens of billions of dollars are quickly being spent on behind-the-scenes technology for the industry’s AI boom.
Companies from Amazon to Meta are revamping their data centres to support artificial intelligence. They are investing in huge new facilities, while even places like Saudi Arabia are racing to build supercomputers to handle AI. Nearly everyone with a foot in tech or giant piles of money, it seems, is jumping into a spending frenzy that could last for years.
Microsoft, Meta, and Google’s parent company, Alphabet, disclosed this week that they had spent more than $32 billion combined on data centres and other capital expenses in just the first three months of the year.
The companies all said in calls with investors that they had no plans to slow down their AI spending.
In the clearest sign of how AI has become a story about building a massive technology infrastructure, Meta said on Wednesday that it needed to spend billions more on the chips and data centres for AI than it had previously signaled.
“I think it makes sense to go for it, and we’re going to,” Mark Zuckerberg, Meta’s chief executive, said in a call with investors.
Nvidia, whose chip sales have more than tripled over the last year, is the most obvious AI winner.
The money being thrown at technology to support AI is also a reminder of spending patterns of the dot-com boom of the 1990s. For all of the excitement around web browsers and newfangled e-commerce websites, the companies making the real money were software giants like Microsoft and Oracle, the chipmaker Intel, and Cisco Systems, which made the gear that connected those new computer networks together.
But Cloud computing has added a new wrinkle: Since most startups and even big companies from other industries contract with Cloud computing providers to host their networks, the tech industry’s biggest companies are spending big now to lure customers.
Google’s capital expenditures – largely the money that goes into building and outfitting data centres – almost doubled in the first quarter. Microsoft’s were up 22 percent. Amazon, which will report earnings on Tuesday, is expected to add to that growth.
Meta’s investors were unhappy with Zuckerberg, sending his company’s share price down more than 16 percent after the call. But Zuckerberg, who just a few years ago was pilloried by shareholders for a planned spending spree on augmented and virtual reality, was unapologetic about the money that his company is throwing at AI. He urged patience.
“Our optimism and ambitions have just grown quite a bit,” he said.
Investors had no problem stomaching Microsoft’s spending. Microsoft is the only major tech company to report financial details of its generative AI business, which it said had contributed to more than a fifth of the growth of its Cloud computing business. That amounted to $1 billion in three months, analysts estimated.
Microsoft said its generative AI business could have been even bigger — if the company had enough data centre supply to meet the demand, underscoring the need to keep on building.
The AI investments are creating a halo for Microsoft’s core Cloud computing offering, Azure, helping it draw new customers. “Azure has become a port of call for pretty much anybody who is doing any AI project,” Satya Nadella, Microsoft’s chief executive, said on Thursday.
Google said sales from its Cloud division were up 28 percent, including “an increasing contribution from A.I.”
In a letter to shareholders this month, Andy Jassy, Amazon’s chief executive, said that much attention had been paid to AI applications, like CHATGPT, but that the opportunity for more technical efforts, around infrastructure and data, was “gigantic.”