Big Tech's AI splurge worries investors about returns ahead of Amazon results

 Big technology companies including Microsoft (MSFT) and Meta (META) are stepping up spending to build out AI data centers in a rush to meet vast demand, but Wall Street is hungry for a quicker payday on the billions invested.

Microsoft and Meta both said on Wednesday their capital expenses were growing due to their AI investments. Alphabet (GOOG, GOOGL), too, reported on Tuesday that these expenditures would remain elevated.

Amazon (AMZN), which is set to report results on Thursday, is likely to echo these forecasts.

The extensive capital spending could threaten fat margins at these companies, and pressure on profitability is likely to spook investors.

Big Tech shares fell in premarket trading on Thursday, highlighting the challenges the companies face as they seek to balance ambitious AI pursuits with the need to reassure investors they are focused on short-term results.

Shares of Meta and Microsoft were down 4%, despite each topping profit and revenue expectations for the July-September period. Amazon also dipped 1.4%.

"It's costly to run AI technology. Getting capacity is expensive," said GlobalData analyst Beatriz Valle.

"It has become a competitive race among the big tech companies to build out capacity. It's going to take time to see the returns, to see widespread adoption of the technology."Microsoft's capital spending for a single quarter now is more than its annual expenditure used to be until fiscal 2020, according to Visible Alpha. For Meta, a quarter's worth of spending is in line with what they spent in a year until 2017.

Microsoft said capital spending rose 5.3% to $20 billion in its first fiscal quarter, and predicted increased spending on AI in the second.

But growth at its key cloud business Azure is likely to slow, it warned, blaming capacity constraints at its data centers.

"I think what investors are missing is that for every year Microsoft overinvests - like they have this year - they're creating a whole percentage point of drag on margins for the next six years," said Gil Luria, head of technology research at D.A. Davidson.

Meta, meanwhile, warned of "significant acceleration" in artificial intelligence-related infrastructure expenses next year.

https://finance.yahoo.com/news/meta-microsoft-lift-ai-spending-023853499.html