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Optimism about the potential for AI to transform the technology industry is leading to increased investment. To see just how rapid this pace is, look no further than Nvidia's (NVDA) income statement.
The stock prices of the biggest tech companies in the market that make these investments show that investors are generally receptive to the idea.
And how executives got investors on board with the idea that it's easy to throw billions of dollars at the still-elusive AI opportunity — and they get paid, too. It is.
Let's take the alphabet (GOOG, GOOGL) as an example.
The company spent just over $32 billion in capital expenditures in 2023, which the company defines in its annual report as spending that “primarily reflects investments in technology infrastructure.” Capital expenditures in 2022 totaled $31.5 billion.
Typically, this is money spent on chips, servers, and raw computing power to run what we experience as a company's suite of services, such as search, YouTube, and Gmail.
This spending increased significantly as AI dwarfed other strategic investments that Alphabet itself was considering.
The company's capital expenditures reached $12 billion in the first quarter. “We expect quarterly capital expenditures to be approximately at or above first-quarter levels for the rest of the year,” Chief Financial Officer Ruth Porat said on a call with investors last week.
Porat warned that the spending could be significant. But his annual spending of $48 billion is about 50% higher than what the company has spent in the past two years.
To get investors on board with this approach, the company is offering incentives.
Alphabet has begun paying a quarterly dividend of $0.20 per share, the first regular dividend in the company's history. Authorization for share buybacks was also increased by $70 billion, on top of the $20 billion available under the existing program.
Considering the current number of shares, the dividend means Alphabet will pay out just under $10 billion in cash to shareholders annually. In the first quarter, Alphabet bought back $16.1 billion worth of its own stock.
The increase in share buybacks will reduce cash expenditures for dividends slightly as the repurchased shares are retired, but if the company maintains its current pace of share buybacks, quarterly shareholder profit will be 18 billion yen. It should fall between $19 billion and $19 billion. On an annual basis, these numbers should approach his $75 billion.
Alphabet's annual capital spending is expected to rise by at least $16 billion in 2024, giving investors more than enough momentum to offset that.
Now, as META learned last week, this support can be fickle.
The company's stock price fell more than 10% after it raised its spending outlook for this year. The move comes just three months after investors cheered Meta on the same initiatives Alphabet announced last week: keeping its dividend on hold and increasing its share buyback authorization.
Meta CEO Mark Zuckerberg told investors that the company's first-quarter results reflect the company's “many years ahead as we continue to build even more advanced models and the world's largest AI service.” “This shows that we need to make significant annual investments.”
“But the reality is that even if we shift many of our existing resources to focus on AI, we will meaningfully expand our investment horizon before we see much revenue from some of these new products. '' he added.
At least for now, investors will be rewarded for the privilege of waiting. It could be an unexpected benefit of the AI boom.
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