San Francisco Frontiers - Big Tech's AI spending rattles markets

The mounting expenses of data-intensive artificial intelligence and its infrastructure have cast a shadow over this earnings season, with only Facebook owner Meta winning Wall Street's approval.

Meta's stock surged 18 percent in January as investors endorsed its AI strategy.

Amazon's AWS cloud division, along with rivals Microsoft and Google, are investing heavily in AI data centers while meaningful returns remain uncertain.

Amazon CEO Andy Jassy defended the spending, saying the company was on track to spend $100 billion on capital expenditure in 2025, with the "vast majority" on AI.

On a call with analysts, he dubbed AI a "once in a lifetime" business opportunity that couldn't be missed.

The emergence of China's lower-cost DeepSeek model has raised questions about such massive spending.

Despite US government efforts to maintain AI dominance through export controls on advanced chips, DeepSeek has achieved comparable results using authorized, less sophisticated Nvidia semiconductors.

Microsoft, leading the generative AI revolution through its OpenAI partnership, plans to invest about $80 billion in AI this fiscal year.

And while it has rapidly deployed AI features under its Gemini brand, Google's Cloud revenue missed expectations, despite growing 30 percent to $12 billion.

Google also announced plans for $75 billion in capital expenditures for 2025, surprising analysts.

Amazon on Thursday reported its fourth-quarter net income doubled to $20 billion, with net sales rising 10 percent to $187.8 billion.

AWS remained profitable with sales growing 19 percent to $28.8 billion, though slightly below market expectations. Jassy celebrated "the most successful holiday shopping season yet."

However, Amazon's shares dropped more than 5 percent in after-hours trading, mirroring reactions to Microsoft and Google's results - strong profits overshadowed by concerns about AI spending.

"Amazon delivered a knockout quarter, but a touch of softness in first quarter guidance has sent shares into a bit of a post-earnings wobble," said Matt Britzman, a senior equity researcher at Hargreaves Lansdown.

Amazon's forecast of 5-9 percent growth for first-quarter 2025, with sales between $151.0 billion and $155.5 billion, also fell short of analyst expectations and weighed on the stock price.

Independent tech analyst Rob Enderle suggested the conservative guidance might reflect uncertainty over US-China trade tensions.

"With the tariff uncertainty, Amazon is being much more conservative right now than they otherwise would be," he said.

China could also be a problem for Apple, which posted a record profit of $36.3 billion last week.

But Apple lost its status as the best selling smartphone brand in the crucial Chinese market last year and could be negatively affected by the trade battles pitting the Trump administration against Beijing.

K.Gray--SFF