RPT-BREAKINGVIEWS-AI’s glut-to-drought shift is Big Tech’s big boon

By Robert Cyran

NEW YORK, April 29 (Reuters Breakingviews) - When Microsoft MSFT.O, Amazon.com AMZN.O, Alphabet GOOGL.O and Meta Platforms META.O report quarterly results on Wednesday, the focus will be on their splurge on artificial intelligence. The technology giants already plan over $600 billion in capital expenditures this year. Fears that this could lead to overcapacity seem to be fading, but the benefits are divided unequally.

Anecdotes abound of chatbot users frustrated by rate limits and coders facing ostensibly AI-driven layoffs. More concretely, as a sign of models’ rapid adoption, look at tokens, the base unit of output generation. Google owner Alphabet processed 16 billion per minute last quarter, and that number is rising rapidly.

Fielding so many queries depends on vast server farms stuffed with silicon. Granted, these chips become more efficient over time: Nvidia’s NVDA.O Vera Rubin generation of processors, launched in March, offers ten times as much performance per watt of power as its predecessor. Yet the price for a year-long rental of its H100 chip, released in 2022, rose about 40% between October and March, according to SemiAnalysis. That indicates rising traffic is outstripping gains in both supply and efficiency.

Anthropic, the company behind programming tool Claude Code, has both driven and benefited from this boom. Its run-rate revenue now exceeds $30 billion. That figure requires a grain of salt, but indicates the shifting balance of excitement with arch-rival OpenAI. The firm led by Sam Altman missed its year-end goal of one billion active ChatGPT users, the Wall Street Journal reported.

Intense competition should be great for Microsoft’s Azure, Alphabet’s Google Cloud, Amazon’s AWS, which provide much of the computing grunt. Yet they lean different ways. Google has backed Anthropic since 2023. Microsoft is OpenAI’s single biggest backer, with a 27% stake, and Azure’s expected revenues depend heavily on Altman.

That partly explains diverging fortunes over the past six months, with Alphabet’s shares rising 30% and Microsoft’s down 20%. The contrast is even sharper when considering how many ways they can benefit – or lose – from the chatbot boom.

With the scramble on for cost-effective computing power, Google’s TPU chips, an alternative to Nvidia, look more attractive. Elsewhere, its advertising or YouTube businesses can benefit from ever-more-sophisticated automation. Microsoft’s enterprise software, meanwhile, may be under threat from AI-powered alternatives.

Yet Boss Satya Nadella can still crow over prodigious free cash flow. After capital expenditures, analysts expect it to be about $70 billion this calendar year, according to LSEG, or about half of estimated earnings. Alphabet’s ratio is less than half that. Right now, investors are banking on tomorrow’s promise more than today’s reality. Given how quickly AI narratives shift, this too may be something of a hallucination.

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CONTEXT NEWS

Alphabet, Microsoft, Meta Platforms, and Amazon.com all report quarterly results after the market closes on April 29.