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Artificial intelligence is likely to pay off generously for computer behemoths such as Microsoft and Alphabet in the future. However, the corporations indicated on Tuesday that they expect further investments before profits trickle down to the bottom line.
Microsoft stated that prices increased dramatically when it built new data centers to enable Artificial intelligence, and that capital expenditures will continue to rise as it purchases chips from companies such as Nvidia Corp to power those data centers.
According to analysts, Microsoft is carrying Artificial intelligence costs in two ways: to power its own products, such as its upcoming $30 (approximately Rs. 2,460)-per-month Copilot AI assistant, and to serve companies that wish to use its Azure cloud computing services to produce AI products.
Microsoft executives stated that the service will generate the majority of its income in the second half of its fiscal 2024, which ends June 30.
“They’re buying a bunch of H100s,” said Ben Bajarin, CEO and lead analyst at Creative Strategies, referring to Nvidia’s flagship AI chips.
“You’re probably going to see something similar with Amazon, if not this quarter, then the next, because both of them are the clouds that the vast majority of the market is using for training (AI systems) right now.”
Alphabet, on the other hand, maintained expenses low for a while, but not for long. The second-quarter expenditure was lower than projected due to delays in data center development, according to Ruth Porat, who will become president and chief investment officer.
“As far as AI is concerned, while Google may have spent upwards of $200 billion (roughly Rs. 1,64,05,000 crore) 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.
Google on Artificial intelligence
Analysts point out that Google has its own unique chip for handling AI tasks called the Tensor Processor Unit (TPU), which helps cut expenses.
According to Atlantic Equities analyst James Cordwell, Microsoft may be “aggressively buying Nvidia chips, given Microsoft’s lack of its own silicon as an alternative.”
However, Google admitted that it will acquire chips from other businesses in addition to its own, and Porat stated that spending might be a drag on earnings and growth.
“The message on the inflection point was the same,” said Gene Munster, managing partner at Deepwater Asset Management, “but the difference was Microsoft investors wanted to see more.”