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Tech giants ramp up AI investments amid Wall Street doubts
(MENAFN) Despite increasing skepticism on Wall Street regarding the returns on artificial intelligence investments, major tech companies have significantly ramped up their capital expenditures by 50 percent, surpassing USD100 billion in their efforts to build the necessary infrastructure for AI. Microsoft, Alphabet, Amazon, and Meta reported a combined spending increase of USD106 billion in the first half of 2024 in their latest quarterly earnings reports. The leaders of these companies dismissed market concerns over their heightened spending, committing to further investments over the next 18 months. Meta CEO Mark Zuckerberg emphasized the importance of proactive investment, stating that he prefers to build capabilities now rather than risk being too late, projecting that Facebook’s parent company will spend USD40 billion on capital this year.
Analysts predict that these tech giants' AI investments could more than double by year-end, with Dell’Oro Group forecasting USD1 trillion towards infrastructure like data centers over the next five years. However, tech companies have yet to fully convince investors that their customers are prepared to spend heavily on AI products and services. Jim Tierney, head of U.S. growth strategy at AllianceBernstein, remarked that technology teams are taking a significant risk with their spending, as investors remain uncertain about the business models and returns, leading to a "trust us" atmosphere that is unsettling amidst substantial expenditure.
The recent earnings reports from major tech companies coincided with a broader decline in Wall Street sentiment, with the Nasdaq entering correction territory on Friday due to weak U.S. jobs data. Semiconductor stocks, including AI chip leader Nvidia, experienced volatility throughout the week as investors scrutinized the spending plans of Big Tech companies. Nvidia's gains and losses fluctuated by approximately USD200 billion over three consecutive sessions, while Intel, which has not yet significantly invested in AI infrastructure due to a lack of competitive products, saw its value drop by over a quarter on Friday following announcements of massive job cuts.
Analysts predict that these tech giants' AI investments could more than double by year-end, with Dell’Oro Group forecasting USD1 trillion towards infrastructure like data centers over the next five years. However, tech companies have yet to fully convince investors that their customers are prepared to spend heavily on AI products and services. Jim Tierney, head of U.S. growth strategy at AllianceBernstein, remarked that technology teams are taking a significant risk with their spending, as investors remain uncertain about the business models and returns, leading to a "trust us" atmosphere that is unsettling amidst substantial expenditure.
The recent earnings reports from major tech companies coincided with a broader decline in Wall Street sentiment, with the Nasdaq entering correction territory on Friday due to weak U.S. jobs data. Semiconductor stocks, including AI chip leader Nvidia, experienced volatility throughout the week as investors scrutinized the spending plans of Big Tech companies. Nvidia's gains and losses fluctuated by approximately USD200 billion over three consecutive sessions, while Intel, which has not yet significantly invested in AI infrastructure due to a lack of competitive products, saw its value drop by over a quarter on Friday following announcements of massive job cuts.
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