AI lesson for Microsoft and Google: Spend money to make money
By Akash Sriram and Stephen Nellis
(Reuters) -Artificial intelligence is expected to pay off big for tech giants including Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL) someday. But expect deeper investments before gains trickle to the bottom line, the companies said on Tuesday.
Microsoft said costs rose sharply as it built new data centers to support AI and that capital expenditures will continue to rise as it buys chips from the likes of Nvidia (NASDAQ:NVDA) Corp to power those data centers.
The Windows maker's shares were down more than 4% in premarket trading on Wednesday, while Alphabet gained nearly 7%.
Microsoft is bearing AI costs in two ways, analysts said: to power its own products such as its forthcoming $30-a-month Copilot AI assistant, and to serve companies wanting to use its Azure cloud computing services to create AI products.
Microsoft executives said the service will start generating the bulk of its revenue in the second half of its fiscal 2024 ending June 30.
«They're buying a bunch of H100s,» said Ben Bajarin, chief executive and principal analyst of Creative Strategies, referring to Nvidia's flagship chips for AI.
«You're probably going to see a similar thing with Amazon (NASDAQ:AMZN), if not this quarter then the next quarter, because both of them are the clouds that the vast majority of the market is using for training (AI systems) right now.»
Alphabet, however, kept down costs, though not for long. Chief Financial Officer Ruth Porat, who will become president and chief investment officer, said delays in data center construction are why second-quarter capex was lower than expected.
«As far as AI is concerned, while Google may have spent upwards of $200 billion on AI investments over the past
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