The major technology companies Microsoft, Alphabet, Amazon, and Meta massively increased their investments in artificial intelligence (AI) in the first half of 2024. The total spending amounted to 106 billion US dollars, according to the latest quarterly reports. This 50 percent increase in spending reflects the race to build the necessary infrastructure for AI applications, although the returns on these investments are viewed skeptically by Wall Street.

I would rather risk building up capacities before they are needed than react too late," said Mark Zuckerberg, CEO of Meta, predicting that the company's capital expenditures could reach 40 billion USD this year.

Analysts at Dell’Oro Group expect Big Tech's investments in AI infrastructure to more than double by the end of the year. Over the next five years, up to one trillion USD could flow into data centers and other infrastructures, even though companies have so far been unable to convince investors that customers are willing to spend large sums on AI products and services.

Technology management teams are all-in on their spending," said Jim Tierney, Head of US Growth at AllianceBernstein. "Investors are still uncertain about what business models and returns will look like. This creates a 'trust us' environment which is not very reassuring given the overall spending.

Here is the heading translated to English:

"The recent quarterly reports of technology companies faced a general sentiment weakness on Wall Street, with the Nasdaq entering a correction on Friday due to weaker US labor market numbers. The stocks of semiconductor companies, including the leading AI chip manufacturer Nvidia, were particularly volatile this week.

While Google, Microsoft, and Amazon experienced stock losses immediately after the release of their quarterly reports, the executives of the technology giants defended their extensive investments. Zuckerberg estimated that the computing power required to train the next major language model would be "almost ten times higher" than for the previous version, although he conceded that it could take "years" for some AI features, like the Meta AI chatbot, to become independently profitable.

In the technology industry, when going through transitional phases like this, the risk of investing too little in AI is significantly higher than the risk of investing too much," said Sundar Pichai, CEO of Google.

Alphabet, the parent company of Google, reported a 90 percent increase in capital expenditures to $25 billion in the first two quarters of 2024 last week. Microsoft followed on Tuesday with a 78 percent increase to $33 billion. Amazon announced on Thursday that investments in real estate and equipment, including its extensive e-commerce and logistics network, rose by 27 percent to $32.5 billion in the first half of the year.

In a subsequent announcement, Amazon stated that capital expenditures would "increase significantly" in 2024. Brian Olsavsky, Amazon's Chief Financial Officer, said that the majority of these expenditures would go towards new cloud infrastructure. Generative AI is now a "billion-dollar business" for the company, he added. Despite these positive developments, Amazon's shares fell by 8.8 percent on Friday due to general market weakness and signs of weaknesses in the consumer business.

The investments of Big Tech primarily focus on purchasing land and building new data centers for their cloud computing services. Large sums are also spent on hardware, including specialized chip clusters — mainly manufactured by Nvidia — which are necessary to train and run large language models.

The demand for cloud services has increased as companies test generative AI services to automate processes and improve productivity, even though most of these experiments have not yet fully transitioned into production. At the same time, start-ups like OpenAI, Anthropic, Elon Musk's xAI, and the French company Mistral are competing for scarce computing resources to train increasingly advanced language models.

The fluctuations in stock prices this week follow a historic rally. The tech-oriented Nasdaq 100 Index has risen by around 70 percent since the beginning of 2023 when the AI boom began, making Apple, Microsoft, Nvidia, Alphabet, and Amazon the five largest publicly traded companies in the world.

The natural comparison that comes to mind for many investors is the telecom bubble of the late 1990s and early 2000s," said Michael Hodel, an analyst at Morningstar. "Most of the companies involved in that expansion went bankrupt. This expansion seems similar in some ways. The main difference, however, is that the companies conducting the bulk of the expansion now have massively profitable existing businesses and fortress-like balance sheets.