Big Tech: Investors questioning when AI bets will pay off

Recent Big Tech earnings reports have revealed that the sector continues to make substantial investments in generative AI technology and initiatives. However, as a result, expectations and valuations for these companies have become extremely high, making them challenging to meet or exceed.

Market Domination anchor Julie Hyman analyzes the details, discussing why these investments are under pressure to succeed, given the lofty resources and market expectations tied to them.

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This post was written by Angel Smith

Video Transcript

Well, as we wrap up a big tech earnings week, it feels like all we've been hearing is the latest on a i.

Investments and companies are making big bets on the technology.

But will it meet some of the lofty expectations to discuss Let's bring in Yahoo Finance market domination.

Anchor Julie Hyman.

Hey, Julie.

Hey there, Brad.

Um, basically, it has to Yes, you know.

And so, um, as I wrote in this morning's morning brief newsletter, um, when you look at the huge amounts of these companies are spending, basically, they have these efforts have to succeed.

It's almost as, uh, my editor, Ethan Wolf man wrote, The A I spend is too big to fail.

So much is riding on it.

And just to put some numbers around it and what we've been hearing about, uh, this earnings season thus far, Meta raised its Capex forecast for the year to 37 to $40 billion.

Microsoft spent $19 billion last quarter.

Amazon spent 30 a half billion dollars in the first six months of the year.

So just to give a few examples of those big spending numbers, alphabet wasn't as clear about what it's spending and what it expects to get out of it.

Um, and you know, we've seen some of these companies get pun when it hasn't been as clear what the return on investment is going to be.

Meadow has been sort of the outlier in that, because the perception has been that they are seeing some fruits of their A I spend when it comes to advertising and other efforts on the platform.

But you do have to worry about the sort of bias if you will.

Brad, from these companies, you know, they'd say how much a. I is transformational, and so they spend all this money on it.

But then, even if it doesn't turn out to be transformational, they're motivated to make it so right because they've spent all this money and there's still a lot of optimism within the industry.

I mean, we talked to Patrick Moorhead the other day, who's a tech analyst, and he's still confident that even if it takes a little while, they'll figure out how best to optimise a I and what it's for.

The pivot, the pivot right?

But it is, you know there are.

There are still a lot of questions.

And there are some in the street who have been asking the question of what are we gonna get all out of all of this, right?

What is the return on investment and and how do we kind of see it in our everyday lives, tangibly and for investors?

How do they really maximise on the shareholder value as a result of that?

And does it take the amount of time that it took Francisco to prove to the street that it could grow into its evaluations?

Um, and speaking of those valuations, we had talked about lofty evaluations with Stacy Razon yesterday, and he was talking about the difference between lofty numbers and lofty valuations.

Not all of these companies being, you know, expensive as he was looking at a company, a poster child and NVIDIA and saying it's actually quite a bit cheaper today than it was before the run started.

But, you know, it really comes back to Are the earnings actually achievable for what these companies are investing in?

Well, in the case, I mean invidia when you look at where they are in the different parts of the staff of the a I stack, if you will.

NVIDIA is getting all that upfront investment.

Then you have the cloud companies, the Amazons, the alphabets, the you know, metas of the world, the Amazons of the world who were then using the chips to build out all of that capacity.

Then there's the next the next wave question of enterprise software companies, Right?

A service now has talked about productivity gains.

But you know, they're gonna be under more and more pressure quantify that and to prove that they are getting those productivity gains and that it is adding to their business.

And if there's again, if they're spending so much, there's going to be a real motivation to justify that spend.

And I think investors and analysts need to take a real hard look at whether they're actually getting out of it, what they say they are.

Excellent context.

Excellent breakdown.

Julie, Thanks so much for joining us here on.

We appreciate it