By Sheila Dang
(Reuters) – Investors appeared to be losing patience with Big Tech’s huge investments in artificial intelligence this week after Meta Platforms signaled higher spending and a long road to profitability.
Meta’s admission in its quarterly report late Wednesday tarnished Microsoft and Alphabet, both of which are due to report quarterly results on Thursday.
Meta shares fell 15% in extended trading after the company forecast higher AI spending next year, while Microsoft fell 2%, Alphabet fell 3% and Nvidia fell 1.4% in response.
Wall Street’s tech-related heavyweights are locked in a bitter battle to advance generative AI, which can create text, videos and photos from prompts and is considered the next frontier of technology.
During Meta’s earnings call, analysts peppered CEO Mark Zuckerberg with questions about how the company is moving forward with its AI investments. One analyst asked whether Meta is spending more because it sees an even bigger opportunity in AI.
“I think we’ve become more ambitious and optimistic about AI,” Zuckerberg responded, pointing to Meta’s recent launch of new AI models. “All of this basically encourages me to make sure we invest to stay at the forefront here.”
Both Alphabet and Microsoft said earlier this year when they reported fourth-quarter results that they expect AI costs to rise. Investor reaction on Wednesday suggested increasing concerns.
In a research note on Alphabet on Monday, analysts at New Street Research said the potential for significantly higher capital spending ahead of Thursday’s results was a concern.
The research firm said it now expects Alphabet’s full-year capital expenditures to be $45.9 billion, up from the previous estimate of $42.7 billion.
Google has been working to catch up in the generative AI race and has released Gemini, a model that can understand and create different types of information, including text, audio and video.
Creating content with generative AI is energy intensive and Zuckerberg cited the cost as a reason for Meta’s higher spending.
Meanwhile, Microsoft has positioned itself as a winner in AI thanks to its partnership with OpenAI, which kicked off the generative AI trend with ChatGPT last year, analysts at Jefferies said in a March 31 note.
Microsoft has integrated chatbots into its Office product suite and plans to invest more in data centers.
Industry-wide, shareholders are now focused on the search for revenue, including pricing models and whether customers can find use cases that justify the costs of generative AI, Jefferies wrote.
“The last year has been spent dreaming about the potential of genetic AI,” the analysts wrote. “This year will be about moving forward with concrete steps.”
(Reporting by Sheila Dang in Austin; Additional reporting by Yuvraj Malik; Editing by Leslie Adler)