For Big Tech, a penny invested in AI is a penny made… maybe. After an indefinite period of time. Investors have hope.
on last week’s earnings call, Amazon, Google, Microsoft and Meta reported more than $350 billion in capital spending this year, Or a long-term investment in a company’s future. All four told investors that number is expected to grow even further next year: Microsoft said “higher”, Amazon said “growth”, Google said “significant growth” and Meta said “significantly larger”.
That could potentially exceed $400 billion combined for the four companies next year, according to Joe Faith, partner and head of growth at Eclipse VC.
The returns on investment of these companies so far have been opaque. Dedicated AI companies meanwhile are struggling with a cash crunch: OpenAI has reportedly been affected $12 billion in annual revenue this summer — while reportedly being on track to burn through $115 billion Till 2029.
Faith said, tension is increasing due to this mismatch. “There’s a push and pull going on between those companies and investors,” he said. “Investors are saying, ‘Will I get a return on this spend?’” This is one of the increasingly clear indicators that parts of the AI industry are a bubble — but it doesn’t yet tell us what happens after it bursts.
AI hype has remained high for several years, and startup valuations have hit astonishing numbers. For example, OpenAI is Allegedly A $1 trillion IPO is expected in 2026 or 2027 and plans to raise $60 billion or more.
But AI companies insist there is still not enough money for chips, data centers and other resources. In a Q&A with reporters at OpenAI’s annual DevDay event last month, executives repeatedly stressed their concern over the lack of compute to expand services like Sora’s video-generation AI and ChatGPT’s Daily Pulse feature, and discussed the need to ultimately make a profit from such services. Amazon, Google and Microsoft — which provide cloud services on a rapidly increasing scale — “have all called for significant capacity-constraints,” said Molly Alter, a partner at Northzone VC. The Verge,
If these claims are accurate, they indicate that simply coming up with good products will not be enough to make AI companies profitable – because they cannot afford to scale those products to support a huge user base. Even if they are exaggerated, the system is incredibly expensive to operate. OpenAI is still considered lose money Even at the $200 monthly subscription level of its ChatGPT service, due to the cost of running queries.
OpenAI’s rumored IPO is a perfect example of this conundrum, Alter said. The company wants to secure about 26 gigawatts of computing capacity for data centers (that’s about $1.5 trillion at current costs, per Alter) — which means that even with the company’s current revenues, an investment of up to $100 billion from Nvidia, and other “circular deals,” Alter says she still doesn’t understand how the company’s glaring funding gap is solved.
Some investors of the company are also asking the same question. OpenAI investor and Altimeter Capital CEO Brad Gerstner asked OpenAI CEO Sam Altman about this podcast Friday explained how a company with $13 billion in revenue could make $1.4 trillion in spending commitments.
“First of all, we’re making far more revenue than that; secondly, Brad, if you want to sell your shares, I’ll find a buyer for you,” Altman replied. “I just…enough.”
In past quarters, Big Tech executives have presented customizable models and AI agents as a saving grace that will, surely, eventually turn a profit — reiterating that they need it. spend money to earn moneyThat includes cutting costs elsewhere and turning resources toward AI.
However, now, agents from OpenAI, Google and others are in the hands of users. And although companies promise that they will continually improve on automating “difficult tasks” in their current state, they are not taking the world by storm.
Investors seemed concerned about the details of Meta’s projected expansion, and their demands for specifics did not always receive clear answers. “There are a lot of moving pieces in the budget. It’s not ready yet. It’s still in the process of coming together,” CFO Susan Lee said in response to a question. “You know, we don’t have any specific goals to share.”
Some investors appeared concerned about whether there was a coherent plan. Meta made headlines for spending billions to poach AI engineers and researchers from competitors for its brand-new superintelligence team in 2025, then announced internal restructuring and layoffs shortly thereafter. Meta’s AI initiative comes after a quick exploration of the virtual reality “Metaverse”, in which it has so far spent and lost Tens of billions through its Reality Labs division. “I don’t think they’re getting any results there that would lead you to believe it’s good spending,” Fath said. The VergeSpeaking about Reality Labs.
Some of the same concerns were present on other company earnings calls, with investors asking about the AI industry’s level of hype, lack of capacity and feature adoption. On Microsoft’s earnings call, one investor asked, “Frankly, are we in a bubble?”
Even tech executives have acknowledged that some aspects of the industry may be overstated. OpenAI’s Altman told reporters last month that “there are many parts of AI that I think are kind of bubble-y right now.” And on Microsoft’s latest earnings call, CEO Satya Nadella told investors, “I don’t think AGI, at least as defined by us in our contract, is going to be achieved anytime soon.” But bubbles are largely driven by sentiment and behavior as well as fear of missing out and expertly marketed corporate narratives.
If this is a bubble, the consensus seems to be that it is a bubble that will not burst in the industry; Rather, it will lead to fewer players and more integration. Alter said the lack of funding within the industry keeps him up at night, especially since investing in a company’s future growth ideally leads to real growth and ultimately profits. The companies that succeed may not be the most glamorous or consumer-facing – just think coding agents, customer service AI and potentially creative content creation rather than AI social networks and all-purpose chatbots.
But there’s no match for AI FOMO, and so there’s no sign of any bubble-y parts of the industry slowing down yet — but Fath said he’s watching to see if OpenAI slows down for any reason, and the same goes for Nvidia’s data center business.
“My understanding is, when a board is sitting there, they’re asking the CEO, ‘What are you doing about AI?'” Fath said. “That’s the question they’re getting. And they need to come up with a ready answer to explain how they’re going to spend on that. And if business starts to get worse, and they’re not spending in AI, those executives will be very criticized… even though we don’t really know what the returns will look like right now.”
“It adds to that whole ‘FOMO’ that’s building across industries and companies to make sure you’re not on the wrong side of change.”
And if overinvestment in AI becomes the wrong side of change? Well, at least everyone was doing that.
