The race to build the computing power necessary for artificial intelligence has Big Tech spending like Big Oil, as described in an analyst note Wednesday. Researchers with Bernstein tallied up the massive price tag for AI at Amazon, Microsoft, Alphabet, Meta and Apple.
"Guidance and commentary for Big Tech (Amazon, Microsoft, Google, Meta, and Apple) points to $200 billion+ in capex (capital expenditures) being deployed this year," a team of Bernstein analysts led by Mark Shmulik wrote to clients. "If current estimates hold up, we could see Big Tech's combined capex spending over the next 4-5 years comfortably surpass $1 trillion+."
A "hefty" portion of the new spending will focus on AI, including new data centers, the note said. The total spending from Amazon stock and its fellow Big Tech firms is likely to exceed the combined capex from the other 90 telecom and communications firms in the S&P 500, the Bernstein analysts added.
"It's not the first time we've seen a group of five scaled incumbents spend heavily in an investment cycle," the note added. "Total capex from Exxon, Chevron, Total, Shell and BP peaked at $160 billion back in 2013."
Oil vs AI
Investors have been focused on generative AI for more than 18 months. Still, the Bernstein analysts acknowledged that the "scale of this investment cycle still surprises."
Oil is a commodity with "proven demand at a known price," Bernstein analysts wrote.
"TBD on whether there's enough incremental revenues to deliver a positive ROIC (return on invested capital) against this AI investment cycle," the note said. "But if Big Tech doesn't invest, they leave themselves exposed to disruption."
It is possible that the companies will reach overcapacity. But the report noted that the tech industry has eventually grown into excess capacity during past investment cycles.
Amazon Stock Vs. Meta Stock: Mixed Reactions To AI Spending
So far, investors have reacted differently to each company's investment plans.
"Google investors rewarded the company, backing them to go win AI," Bernstein's note said.
Meanwhile, "Meta's investors were taken aback by the length of the investment cycle and recent PTSD that this is Metaverse 2.0 all over again."
Amazon and Microsoft were more in the middle, however. Investors are lukewarm on the spending, but see a path to monetizing through their Amazon Web Services and Azure cloud businesses, Bernstein noted.
Apple, meanwhile, stands out from the rest of Big Tech. Its capex in the first half of fiscal 2024 is actually down year over year.
"By increasingly using third party data centers, Apple is effectively expensing much of its AI investment through its income statement, which is comparatively lower risk than peers," Bernstein analysts wrote.
Apple is likely to reveal more about its AI plans at it June 10 developers conference.
On the stock market today, Amazon stock is down 1.7% at 183.88 in recent action. Shares of Microsoft are up 1% at 420.64. Meta is up a fraction at 473.18 in recent action. Apple is up 1.3% at 189.78 while Google is up .75% at 171.64 at last check.
