Big Tech’s profits have come and gone. Well, aside from Nvidia (NVDA), which will report on November 19th. That aside, one key trend emerging from this quarter’s report is that Wall Street generally likes what it sees in AI, despite increased spending among hyperscalers.
Microsoft (MSFT), Google (GOOG, GOOGL), and Amazon (AMZN) reported strong results last week, driven by strong performance from their respective cloud businesses.
The only problem? Companies that use cloud services such as OpenAI (OPAI.PVT) are still not profitable.
“The big question that’s still on everyone’s minds right now is… how is a company like OpenAI, which says it’s going to spend $1.4 trillion, probably losing billions of dollars a quarter, going to make up for that?” Bob O’Donnell, president and chief analyst at TECHnaracy Research, told Yahoo Finance.
“They have to generate significant income, and that’s the part that’s making people nervous.”
Amazon’s AWS division’s growth rate has reaccelerated to 20.2%, a level CEO Andy Jassy says the company hasn’t seen since 2022.
Microsoft’s cloud revenue, which includes the Microsoft 365 commercial cloud, Azure, Dynamics 365 and the commercial portion of LinkedIn, rose 26% to $49.1 billion. Google’s cloud revenue rose 34% year over year to $15.1 billion.
He also said companies are adding data center capacity as quickly as possible to keep up with demand for AI tools, which will require billions of dollars in additional capital investment this year and next.
Shares of Amazon and Google’s parent company Alphabet rose on the news, but shares of Microsoft fell. Still, analysts were positive about the results, pointing to the growing backlog and the strength of both companies’ AI businesses.
“Obviously, the numbers across the board, particularly for the cloud guys who are providing the AI infrastructure, were incredibly strong and showed continued solid growth,” O’Donnell said.
But questions remain. When will AI developers start achieving similar returns on investment?
While AI infrastructure companies are posting huge numbers, AI large-scale language modeling companies are still spending billions of dollars to develop new models and revenue schemes.
And it takes quite a while before you start making profits. Let’s take a look at OpenAI. The company has pledged to spend more than $1 trillion to deploy the computing power needed to run its AI services.
In an interview on the Bg2 podcast, Brad Gerstner asked OpenAI CEO Sam Altman about the company’s ability to pay for its computing needs, asking how a company with $13 billion in revenue could cover $1.4 trillion in spending.
