Microsoft and Alphabet Ramping Up Spending on Artificial Intelligence Infrastructure

by Warren Seah

Jefferies analyst Mark Lipacis, a bullish Nvidia Corp. analyst, is reevaluating his above-consensus estimates after observing the numerous mentions of “AI” on Microsoft and Alphabet’s recent earnings conference calls. The increased mentions of artificial intelligence compared to late 2022 indicate that both companies are significantly increasing their spending on infrastructure to support the massive data loads required for AI.

According to Lipacis, Microsoft’s capital expenditures for the June-ending quarter reached $8.9 billion, a 24% increase compared to the Street consensus of $8.3 billion. Microsoft anticipates further acceleration in capital expenditures in the current quarter, driven by the need for broader datacenter capacity and hardware procurement, including CPUs, GPUs, and networking equipment. This acceleration could result in approximately $40 billion in capex by fiscal 2024, surpassing Street estimates of $32 billion.

Similarly, Alphabet mentioned that AI serves as the main driver for its capex growth. While its capex for the June-ending quarter was $6.8 billion, lower than the Street expectation of $7.9 billion due to moderated office facility spending and delayed data center construction projects, Lipacis emphasized that Alphabet’s major investment was in servers with a significant increase in AI compute investments. The company predicts higher spending in the second half of the year.

Notably, Lipacis believes that this positive trend in AI investment from Microsoft and Alphabet also benefits other companies such as Advanced Micro Devices Inc. (AMD), Intel Corp., Marvell Technology Inc., and Broadcom Inc. Intel’s earnings report is expected after the bell on Thursday, while AMD’s report is scheduled for Tuesday.

As Nvidia prepares to report its earnings in late August, analysts surveyed by FactSet anticipate earnings of $2.07 per share on revenue of $11.08 billion for the chip maker.

Additional Reading: Microsoft’s AI Payday Will Take Time, and Investors Need to Be Patient

You may also like

Leave a Comment