The AI Spending Boom Is Creating a Depreciation Time Bomb
High Tanker Rates Disrupt Persian Gulf Oil Shipments to Asia CityAM.com is the online presence of City A.M., London's first free daily business newspaper. Both platforms cover financial and business news as well as sport and… The eye-watering capital expenditure plans of Big Tech has been one of the year’s biggest stories.
Google, Meta, Amazon, and Microsoft have all splurged to secure a podium spot in the race to build out the infrastructure that will run the artificial intelligence (AI) revolution.
Total capex by these four firms isexpected to reach$750bn (£560bn) this year, around half the annual spending of the entire UK government.
It is much higher than this high-tech quartet has budgeted for before.
And it is expected to be even higher next year.
Shareholders are on board with the plan, up to a point.
Since 2023, the average share price across the four firms has doubled.
But that hasn’t kept pace with the average quarterly capex budgets, which have roughly quadrupled over the same period.
These trillion-dollar businesses can’t be too far away from hitting a ceiling on growing their computing power.
Firstly, because of physical constraints – things like the supply of chips and the availability of power and water infrastructure – with the latter beginning to come under genuine constraint in some parts of the developed world.
Secondly, because of the sheer build cost, given that most AI projects are far from hitting profitability, and there isn’t enough cash flow elsewhere to fill the hole.
Alphabet, Google’s parent company,has raised $85bnon its own in debt over the past year.
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