Photo was created by Webthat using MidJourney
The Future Payoff of AI for Microsoft and Google
Artificial intelligence holds great promise for tech giants Microsoft and Alphabet (Google). However, both companies expect significant investments in the technology before reaping substantial benefits. While Microsoft’s capital expenditures have surged as it builds new data centers to support AI, Alphabet is seeking to keep costs under control while maintaining its competitive edge.
Microsoft’s Ambitious AI Plans
Microsoft is taking on AI costs in two ways: supporting its own products, such as the upcoming Copilot AI assistant with a $30-a-month subscription fee, and providing AI capabilities to companies through its Azure cloud computing services. The company’s strategic investment in Nvidia’s flagship chips (H100s) to power its data centers indicates its commitment to training AI systems effectively for tech giants
The Road to Revenue Generation for Microsoft
Despite mounting costs, Microsoft remains optimistic about the revenue potential of its AI endeavors. Company executives project that the AI service will start generating significant revenue in the latter half of its fiscal year 2024, which concludes on June 30. The progress will be closely watched by investors and industry observers.
Alphabet’s Cost-Control Approach
In contrast to Microsoft’s aggressive spending, Alphabet has managed to keep AI-related costs in check. CFO Ruth Porat attributes the lower second-quarter capital expenditures to delays in data center construction. Despite spending an estimated $200 billion on AI investments over the past decade, Google’s prudent approach has not been fully appreciated by users and investors, according to industry analysts.
Google’s Advantage with Custom AI Chips
One significant advantage for Google is its development of custom chips designed for AI work called Tensor Processor Units (TPUs). This proprietary hardware not only bolsters Google’s AI capabilities but also helps reduce costs, setting the company apart from its competitors.
Striking the Balance between Investment and Profit
While Google is cautious about maintaining spending on AI, it acknowledges the need to supplement its custom chips with purchases from other tech giants. This mixed approach may have implications on profitability and growth. Investors and industry experts closely watch how Google manages this balance to capitalize on the AI market.
