The so-called results season is currently underway in the USA. It is the period during which global companies publish their economic results for a few weeks and it happens 4 times a year. But what makes the current results interesting? In this text, we will focus on large technology companies, which are usually referred to as Big Tech, or the Magnificent 7 (Apple, Microsoft, Nvidia, Alphabet, Amazon, Meta and Tesla). In this case, we will remove Tesla from today’s consideration, because it is different and focuses on something completely different from other companies. In the same way, we will also remove Apple, which operates only part of its servers in-house and has a part with external suppliers. We will mainly revolve around AI. Large technology companies want to be the main global players in this area, and so far they are doing pretty well. Three of them, namely Amazon, Microsoft and Google are the world’s three largest cloud providers and occupy about two thirds of this market, viz. picture.
https://x.com/EconomyApp/
But artificial intelligence needs expensive servers and chips and high computing power, which is why these three companies have an advantage over the others. The results season was started on Tuesday evening by Alphabet, which is the parent company of Google. As such, the results were really good, even if the stock eventually responded to them with only a modest increase of about 3%.
But importantly, Google’s infrastructure capital expenditure (CAPEX) was a whopping $13 billion, up from $8 billion a year ago. Microsoft was the second to report its results. Even in this case, the numbers were good, but due to problems with some suppliers of components specifically for the cloud, the company issued a slightly lower outlook for the current quarter and the shares fell by about 7%. So this also shows us how sensitive investors are at the moment to stumbles in the cloud and therefore also in AI. Microsoft reinvested even more than Alphabet last quarter, about $15 billion, a 50% year-over-year increase.
The next player is Meta. In this case, too, the results were excellent, all important metrics for the company grew, and in this case, too, we received information about huge investments. For Meta, CAPEX was $9.2 billion, compared to $6.7 billion a year ago. But CEO Mark Zuckerberg said that these investments will be, I quote, significantly higher next year. The stock ended up losing about 6%. Amazon was the last of the four to report the results. In this case too, the numbers were excellent, the company’s important segment of advertising and the cloud grew nicely, both by 19%. Amazon’s CAPEX was a whopping $22 billion, year-to-date $55 billion, last year $69 billion, and CEO Andy Jassy says spending will be $75 billion this year. Although some of them will not go to servers, but to physical infrastructure in the form of warehouses, for example, it is still a huge number.
Let’s do some quick math. The spending of this foursome is about 60 billion USD in one quarter. If expenses did not grow, we are talking about 240 billion USD per year, which is a really huge amount. All firms also agree that spending will grow next year. Company leaders say that it is better to be overinvested than underinvested, that demand is always higher than capacity and that this is a once-in-a-lifetime opportunity. And what does Nvidia have to do with this? A pretty good chunk of that revenue will end up with it, because it’s the only company in the world that can provide tech companies with the best AI chips at least in some reasonable range. Apparently, AMD is technologically close as well, but Nvidia absolutely cannot compete with the scale of production (the Taiwanese TSMC produces chips for both companies). So in this case, the best business is selling pickaxes during the gold rush, and the pickaxes in this case are Nvidia chips. According to what these companies are saying, Nvidia is in for a very good year this year, as well as next year.
And will these huge investments pay off for companies? Of course, we don’t know that at the moment. If AI turns out to be something that will have a real and big benefit for the world economy, productivity and companies themselves, then the investments make sense. In addition, it would further strengthen the already enormously strong position of the mentioned companies, which probably no one would definitely be able to compete with. But if it turns out to be a dead end, or monetization is complicated, then these investments will be questionable and in the end it may turn out that companies have thrown hundreds of billions of USD out the window. Either way it turns out, I’m glad to live in this time and to be able to watch this extremely interesting technological development.