Future profits from artificial intelligence are anticipated to be significant for tech behemoths like Microsoft and Alphabet. But before profits start to affect the bottom line, expect deeper investments, the corporations said on Tuesday.

According to Microsoft, prices increased significantly as it built new data centres to enable AI, and they will continue to increase as it purchases chips from companies like Nvidia Corp. to power those data centres.

According to experts, Microsoft is paying for AI in two ways: to power its own products, like the upcoming $30/month Copilot AI assistant, and to assist businesses looking to utilise its Azure cloud computing services to develop AI products.

The majority of the service’s revenue will start coming in during the second half of Microsoft’s fiscal year 2024, which ends on June 30.

“They’re buying a bunch of H100s,” said Ben Bajarin, chief executive and principal analyst of Creative Strategies, referring to Nvidia’s flagship chips for AI.

“You’re probably going to see a similar thing with Amazon, if not this quarter then the next quarter, because both of them are the clouds that the vast majority of the market is using for training (AI systems) right now.”

Alphabet, however, managed to contain expenditures, albeit briefly. The second-quarter capex was less than anticipated, according to chief financial officer Ruth Porat, who will soon be president and chief investment officer. She attributed this to delays in data centre building.

“As far as AI is concerned, while Google may have spent upwards of $200 billion on AI investments over the past decade, much of that isn’t necessarily appreciated by users and investors,” said Scott Kessler, global sector lead for technology media and telecommunications at Third Bridge.

Analysts noted that Google has the Tensor Processor Unit (TPU), a proprietary chip for handling AI operations, which helps reduce expenses.

Microsoft might be “aggressively buying Nvidia chips, given Microsoft does not have its own silicon as an alternative,” according to Atlantic Equities analyst James Cordwell.

However, Google acknowledged that it will also purchase chips from other businesses in addition to utilising its own, and Porat warned that spending could hinder development and profit.

“The message on inflection point was the same,” from Microsoft and Google, said Gene Munster, managing partner at Deepwater Asset Management, “but the difference was Microsoft investors wanted to see more.”

(Adapted from FlipBoard.com)

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