Rick Wilking/Reuters
- Big tech companies have been trying to keep a lid on spending plans.
- Nvidia is selling billions of dollars worth of GPUs for AI data centers.
- Both things can't be happening at the same time.
2023 was supposed to be the year of austerity for Big Tech. The AI arms race is changing that.
Amazon, Google, Meta and Microsoft have cut thousands of jobs in the past year, while trimming capital expenditure plans to please Wall Street. It worked. Their shares rebounded a lot.
Enter Nvidia and the generative AI boom. It sells GPUs, special chips that are used to train these big new AI models. For its upcoming quarter, the company forecast $11 billion in revenue, up 64% from a year earlier. Most of that growth is coming from AI demand, especially in the data center space.
The biggest operators of data centers are Amazon, Google, Meta and Microsoft. They are also big AI model developers and major customers of Nvidia. So how can these tech giants be keeping a lid on spending, while Nvidia sales are surging?
For a while, some analysts and investors tried to believe both things were happening at once. It's nice to have your cake and eat it. Logic and math have begun to prevail now, though. And the expectation is that Big Tech is going back to splurging again.
"Increasing CAPEX across the board is probably the worst kept secret on Wall Street," Mark Shmulik, a top tech analyst at Bernstein Research, wrote in a note to investors on Tuesday that previews some of the upcoming Big Tech earnings season. "All those Nvidia GPUs have to be going somewhere."
Here's what Morgan Stanley analysts think will happen to Big Tech spending habits:
- Google capex will rise 4% to about $33 billion in 2023 and 8% to roughly $35 billion in 2024. That will be driven by a 31% jump in technical infrastructure spending this year, and a 15% increase next year.
- The analysts are forecasting Meta capex of $33 billion this year, at the high end of the company's guidance. Next year, capex will rise about 9% to $36 billion, powered by growth in infrastructure spending to support AI recommendation algorithms and generative AI.
- Amazon's AWS technical infrastructure capex will climb about 8% this year to $37 billion. It will pop 15% in 2024 to reach $42 billion.
"We see more potential upside risk to '24 capex estimates than '23," the Morgan Stanley analysts wrote in a recent note. "In many ways, given the opportunity these AI tools create (and the data/distribution advantages these large companies have) we hope they spend as much as they can…provided they can deliver and communicate the incremental ROIC for investors."
ROIC stands for return on invested capital. Another translation might be: These companies better make good money on all this AI stuff.