At the start of this week, the question was whether the shock of China’s supercheap AI DeepSeek would compel Silicon Valley’s big artificial-intelligence companies to reduce their spending. Now, we can say the definitive answer is no.
Amazon.com Inc., Alphabet Inc., Meta Platforms Inc. and Microsoft Corp., the country’s leading hyperscalers, are embarking on an unprecedented year of spending — a combined $325 billion in projected capital expenditures for 2025.
In dollar terms, their clamor for new data centers and energy to power them is unlike anything the technology industry has ever seen. In mood, the scramble is comparable to the dot-com boom.
The level of spending in some quarters has exceeded what Wall Street, already anticipating big increases, had been expecting. Google-parent Alphabet announced it expected capital expenditures for 2025 to be $75 billion, compared with analysts’ projections in the region of $60 billion.
Amazon’s investment is so large that executives couldn’t even bring themselves to say it clearly. Instead, on Thursday, Amazon noted during a call to discuss its earnings that in the last quarter of 2024, spending was just more than $26.3 billion, a level that would be “reasonably representative” for each quarter for the next year. An inventive way indeed to avoid saying capital expenditures in 2025 would exceed $100 billion.
Chief Executive Officer Andy Jassy stressed that not all of that will be on AI, or even cloud computing. Amazon does, after all, have an expanding e-commerce operation. However, the “vast majority” of that eye-watering amount would be geared toward building capacity for AI. Jassy justified this by saying this was all in preparation for a “once in a lifetime” opportunity.
“We think virtually every application that we know of today is going to be reinvented with AI inside of it,” Jassy told investors. “If you believe that,” he said, “AI represents for sure the biggest opportunities since cloud and probably the biggest technology shift and opportunity in business since the internet.”
Be that as it may, the spending so far is greatly exceeding the returns, heightening fears among investors that the spending is a gamble that may never pay off. At Meta, for instance, a spending increase of 75% compared with 2024 dwarfs the 15% revenue growth expected by analysts. In cloud computing — the picks and shovels of AI — Google and Microsoft both disappointed in the last quarter, missing analysts’ expectations. Amazon fared better, beating Bloomberg consensus estimates on sales, but here, too, growth has been flat for the past three quarters. And in the short term, the company said AI would be a drag on the operating margins that undergird Amazon’s overall profits.
This looks like a troubling indicator because cloud computing is expected to be among the earliest of industries to derive meaningful revenue from AI. However, the three leading cloud providers all indicated that a lack of capacity, rather than a lack of demand, was holding sales back. Amazon attributed its supply constraints in part to the chips it needs “coming a little bit slower” from suppliers than it would like. There’s also the pressing need for more power, something that will be only partially addressed by the $500 billion “Stargate” infrastructure project.
Little of this spending outlook seems to have been altered by the arrival of DeepSeek. Jassy, echoing the other tech executives earlier this week, brushed off the Chinese startup. He complimented some of the engineering techniques involved but rightly stressed that the long-tail revenue opportunity for its company’s investments was about providing the capacity to run AI securely, quickly and at scale.
For all the noise generated last week, when commentators suggested Silicon Valley had been well and truly humbled, we can now more accurately the say DeepSeek hasn’t changed that game — only raised the stakes.
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