Big Tech's AI Spending Spree May End with Global Financial Crisis
The second quarter earnings season for Big Tech has begun with Alphabet's quarterly report. The tech giant spent $55.9 billion on capital expenditures in the first quarter, a significant jump of 81% from last year. This trend is expected to continue throughout the year, with combined CapEx by the four major hyperscalers (Alphabet, Amazon, Microsoft, and Meta) projected at a whopping $710 billion.
The Bank for International Settlements has warned that overinvestment in AI infrastructure could lead to a global financial crisis. The report suggests that tech companies may struggle to sustain their record capital expenditures, particularly in the AI sector. Asa Fitch from WSJ noted that once returns fail to match investments, financing and stock prices will likely suffer.
The four major hyperscalers are scaling back their reliance on Nvidia's expensive AI servers by developing custom chips. This move may slow down cloud sales growth at Alphabet, Amazon, and Microsoft. Analysts expect Alphabet's second-quarter revenue to rise 21% to $117 billion and adjusted income to increase 26% to $2.91 per share.