This is The Takeaway from today’s Morning Brief, that’s possible to register to receive in your inbox every morning, along with:
If the summer was about the ROI on AI, or rather, the absence thereof, how much patience does Wall Street have for declining technology revenues?
Judging from the rally in chip stocks, investors waiting for details on where all that infrastructure money is going and when new revenue will arrive will have to wait a while longer. A valuable asset is its own defense.
As analysts pressure tech executives for clearer timelines around the supposed AI transformation, chip names continue to rise. Nvidia is once again threatening Apple as the most valuable company on the market. Semiconductor names post gains, ending August’s decline. That reflects intense demand for AI processing and infrastructure and a disregard for near-term concerns about rising investment. Chasing the dream is expensive.
And once again, investors are wondering where the limit is – if it exists.
The third quarter reports are ready to test those limits with even more money at stake. The longer the capex hose remains open and the more vehemently executives merge their identities with the AI wave, the harder it will be to return. Megacap tech companies are expected to spend $215 billion on AI investments this year, and another $250 billion by 2025, according to Goldman Sachs.
There is no sign of a slowdown in investments yet. But we’ll look for clues as to how long AI’s growth will last until companies’ whims, preferences, and future spending begin to reveal themselves in spreadsheets. It is only a matter of time before the envisioned productivity gains and “innovative AI use cases” become a reality.
The tight, symbiotic ecosystem of AI hardware sales suggests that once Big Tech eases spending or moves elsewhere, previously robust fundamentals could be destabilized.
The technology giants largely disappointed Wall Street last quarter. Only Meta came out with a clear victory. While earnings reactions from Alphabet (GOOG, GOOGL), Microsoft (MSFT) and Amazon (AMZN) highlighted how heavy AI investments could become a risk, Zuckerberg showed that Wall Street doesn’t mind ramping up capital investments, as long as all other parts of the business exceed expectations. That’s a high bar to cross. And it will only get harder as the expense side of the ledger grows without reliable revenue to offset it.
Seeing risks from the past is a virtue at the top of the corporate ladder. This also applies to suppressing bubble chatter. If the upward trajectory of chip stocks is any indication, the tech giants will continue to double down on their mega-spending. That is what we expect from tenacious leadership. Even though everyone is curious about answers.
Hamza Shaban is a reporter for Yahoo Finance covering markets and the economy. Follow Hamza on X @hshaban.
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