Big Tech's AI Spending Surge: What It Means for the Future and the Economy

As this earnings season continues, investors are closely watching Big Tech, particularly giants like Microsoft (MSFT), Alphabet (GOOG GOOGL), Amazon (AMZN), and Meta (META). But it’s not just their profits that are making waves—what’s grabbing attention is how much they’re spending on artificial intelligence (AI).

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According to Bank of America (BofA) analysts, Savita Subramanian and Ohsung Kwon, we’re witnessing an "AI arms race." While there’s some worry about when AI will start making money, these companies are focused on pouring resources into AI to secure their place in the future.

Big Spending on AI

The investments in AI by Big Tech have jumped in recent months. In fact, since the second quarter of this year, for every dollar spent by these companies, there has been an additional $19 added to capital expenditure forecasts. Right now, the total AI spending is at a whopping $206 billion, up 40% from last year. That’s about 20% of all investments in the S&P 500.

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What’s even more interesting is that while these tech giants are ramping up spending, many other companies are cutting back. This is because AI is seen as the next big thing, and only the largest companies have the funds to invest so heavily in it.

AI Boom Similar to Past Technology Revolutions

Greg Daco, chief economist at EY, compares today’s AI rush to earlier technology breakthroughs, like the introduction of electricity and computers. According to Daco, in the beginning, investments in new technology often lead to higher costs, which can drive up prices. But over time, these technologies boost productivity and improve efficiency, which is a win for the economy.

He explains that the heavy investments in data centers, hardware, and other AI infrastructure are already contributing to inflation. However, he believes that in the long term, AI will pay off by making industries more productive. "The goal is always higher productivity," Daco says, pointing out that this is where AI could really shine in the future.

Big Tech Isn’t Chasing Immediate Profits

Even with all this spending, the big players in AI aren’t focused on making quick profits just yet. Instead, they are more concerned with staying ahead of the competition in the long run. They don’t need investors’ money right now—they have enough resources to keep fueling AI advancements on their own.

However, there is a risk. Historically, companies that ramp up their spending like this have underperformed in the stock market. BofA notes that since 1986, the top 10% of companies with the fastest-growing investments have struggled to keep pace with the S&P 500.

While the road to making money from AI might take time, the size of these investments suggests that the payoff could be substantial. But for now, investors may need to be patient.

AI Spending Could Lead to More Jobs and Higher Productivity

Even though profits may not come right away, there are two big reasons why these massive AI investments are important. First, AI has the potential to significantly improve productivity by automating tasks and streamlining operations. If AI lives up to its promise, it could revolutionize industries and create huge gains in efficiency.

Second, the spending itself is already creating jobs. Building AI infrastructure, like data centers and hardware, requires a lot of labor, which helps boost the economy. So even if AI takes longer to generate profits, the investment is still supporting job growth.

Big Tech’s Focus Is on the Future of AI

The AI race is in full swing, with Big Tech leading the charge. While it might be a while before these companies see big profits from AI, they are betting that their investments will give them a huge advantage in the future.

Right now, Microsoft, Amazon, Google, and Meta don’t need your money to keep the AI revolution going—they have plenty of resources. The question is, how long will it take for these investments to pay off, and what will that mean for both the companies and the broader economy?.

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