We all wanna change the world, but it ain't gonna be cheap.
Artificial intelligence promises to rewire the human experience in ways that even the experts probably haven't imagined yet.
Related: Meta earnings blast forecasts, but Facebook parent sees big capex increase
But it will take money, and for companies, that will come under the heading of capital expenditures or capex.
Microsoft (MSFT) , Amazon (AMZN) Web Services, Alphabet's (GOOGL) Google, and other big tech companies could collectively increase capital spending to about $200 billion in 2025, according to a Bloomberg Profession Services study.
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This represents a two-year gain that’s triple the 2020-23 average. Why? Generative-AI demand is spurring outlays on data centers and new products, the report said.
"It may take 2-3 years to see the financial benefit, which we anticipate will come in the form of higher cloud utilization, copilots, and large language model licensing," the Bloomberg study said.
Bloomberg’s analysis of the top tech companies found over $90 billion in incremental capital spending in 2024-25 compared with 2023, which is mainly dedicated to expanding generative-AI infrastructure.
Meta Platforms CEO: 'AI requires serious infrastructure'
Mark Zuckerberg clearly appreciates the importance of investing in artificial intelligence.
The CEO of Facebook parent Meta Platforms (META) spoke about the cost of doing AI business during the company's third-quarter earnings call on Oct. 30.
Related: Analyst reset Meta stock price target ahead of Q3 earnings
"First, it's clear that there are a lot of new opportunities to use new AI advances to accelerate our core business that should have strong ROI over the next few years," he said. "So, I think we should invest more there."
In addition, Zuckerberg said that the social media giant's AI investments "continue to require serious infrastructure, and I expect to continue investing significantly there too."
"We haven't decided on the final budget yet, but those are some of the directional trends that I'm seeing," he said.
Zuckerberg said quarter saw strong product and business momentum and "with parts of our long-term vision around AI and the future of computing coming into sharper focus."
"We estimate that there are now more than 3.2 billion people using at least one of our apps each day, and we're seeing rapid adoption of Meta AI and Llama, which is quickly becoming a standard across the industry," he said.
Chief Financial Officer Susan Li told analysts that Meta's full-year 2024 capital expenditures will be in the range of $38 billion to $40 billion, updated from $37 billion to $40 billion.
“We continue to expect significant capital expenditure growth in 2025,” she said
Meta Platforms posted earnings of $6.03 per share, up 14.9% from a year ago and above analysts' consensus estimate of $5.25 per share.
Revenue rose 18.9% to $40.59 billion, nearly all of it from advertising sales, topping Wall Street forecasts of $40.3 billion.
Daily Active People, a key metric the company employs to define users that interact with at least one of its family of apps, including Facebook, Instagram, WhatsApp, and Messenger, rose 4.8% from last year to 3.29 billion.
Meta Platforms analyst says increased investment justified
Meta Platforms forecasts fourth-quarter revenue in the region of $45 billion to $48 billion, and overall capital spending for 2024 will be between $38 billion and $40 billion.
The spending surge contributed to shares falling 4% on Oct. 31. Meta's stock is up 59% year-to-date, and shares have surged 86.2% from a year ago.
More Tech Stocks:
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Several investment firms issued research notes on Meta Platforms' results.
Wedbush analysts reiterated their outperform rating and $640 price target on Meta Platforms shares, noting that the company reported healthy third-quarter results with revenue slightly ahead of Wall Street's estimates.
"As expected, Meta did not provide quantitative expense or capex guidance for 2025," the firm said.
"That said, management did share commentary related to investments next year and the company expects significant capex growth in 2025 and an acceleration in infrastructure expense growth related to higher depreciation and operating costs associated with expanded infrastructure capacity."
Wedbush said that while the pace of expense and capex growth next year will be a debate until guidance is given next quarter, "we think increased investment is justified given the benefits of AI is already bringing to the business and the considerable optionality for future growth across family of apps and reality labs."
"Meta’s investments are already driving improvements in the core business as AI driven-feed and video recommendations have increased time spent on Facebook and Instagram this year by 8% and 6%, respectively," the firm said.
Goldman Sachs analysts maintained their buy rating but cut their price target to $630 from $636.
The firm said Meta produced "a solid set of earnings with slight upside in advertising revenue performance in Q3 (Inside the top end of its guided range) & forward revenue guidance implying continued strength into next quarter."
"Similar to two quarters ago, META management seemed to be framing a forward investment cycle around secular growth themes anchored around AI and spatial computing technologies," Goldman Sachs said.
The firm raised concerns about "sizable capex growth into a multi-year investment cycle to support AI efforts," and analysts at Bank of America Securities listed capex among the negatives in the earnings report.
BofA reiterated its buy rating and raised its price target to $660 from $630, noting that "growing AI focus could drive positive product surprises in coming quarters (AI customer service offer, Meta AI ads or subscription, etc.), which can boost optimism on growth."
But the firm also pointed to "outlook for material increase in capex next year driven by increasing pace of Al investments which will flow through to higher depreciation expense."
"We think Meta's Al-driven ad improvements still have several quarters to play out," BofA said. "We also think Meta's growing AI focus could drive positive product surprises in coming quarters (AI customer service offer, Meta AI ads or subscription, etc.), which can boost optimism on growth."
Related: Veteran fund manager sees world of pain coming for stocks
