Big Tech is spending big on AI

Big technology companies, including Microsoft (NASDAQ:MSFT), Meta (NASDAQ:META), Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), are funneling billions of dollars to build artificial intelligence (AI) centers to meet ever-growing demand, without any clear indication of returns on their investments.

Earlier this week, both Microsoft (MSFT) and Meta (META) stated that their capital expenditures would grow due to their AI investments. Alphabet (GOOG) (GOOGL) said its capital spending in 2025 would be higher than this year. Amazon (AMZN) said that it expects higher spending for the foreseeable future.

Despite rosy results, shares of the big tech firms fell as investors worried about the impact of elevated spending on their traditionally robust profit margins and profitability.

During Alphabet’s (GOOG) (GOOGL) earnings call, chief financial officer Anat Ashkenazi said that the search giant had invested $13B in capital expenditure during the third quarter, and that it expects to invest at the same level in the fourth quarter.

Meta (META) expects 2024 capital spending in the range of $38B to $40B, higher than its prior range of $37B to $40B. The Mark Zuckerberg-led company expects significant capital expenditure growth in 2025.

Microsoft (MSFT) said its capital expenditures were $20B in the first quarter, with spending expected to increase on a sequential basis, given cloud and AI demand signals. The company blamed a 7% year-over-year dip in its free cash flow on its increased spending to support its cloud and AI offerings.

Amazon (AMZN) expects to spend about $75B in capital expenditure in 2024. The company noted it had already spent $51.9B, with the majority of the spending to support the growing need for technology infrastructure.

“It is a really unusually large maybe once in a lifetime type of opportunity,” said Amazon CEO Andy Jassy during its earnings call.

According to analysts at UBS, “Despite recent volatility and mixed reactions to tech earnings, we believe AI should be a key driver of equity market returns over the coming years.”

For investors tracking technology stocks, here are some exchange-traded funds of interest: (VGT), (XLK), (IYW), (FTEC), (IXN), and (RSPT).

And here are some ETFs tied to AI and robotics: (AIQ), (BOTZ), (DTEC), (GINN), (ROBT), (TECB), (XT), (THNQ), and (CHAT).