Technology giants Microsoft and Alphabet are heavily investing in artificial intelligence (AI) with the expectation of significant payoffs in the future. However, before these gains reach the bottom line, both companies anticipate deeper investments.
The Microsoft is incurring rising costs as it builds new data centers to support AI. These capital expenditures will continue to increase as the company purchases chips from companies like Nvidia to power its data centers.
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Microsoft bears AI costs in two ways: to develop its own AI products, such as the upcoming Copilot AI assistant, and to cater to businesses using its Azure cloud computing services to create AI products.
The revenue from these investments is expected to generate significantly in the second half of its fiscal year 2024.
Alphabet, on the other hand, managed to keep costs down initially, but delays in data center construction affected its second-quarter capital expenditures, making them lower than expected.
Google’s advantage lies in having its own custom chip called the Tensor Processor Unit (TPU), which helps reduce costs for handling AI work.
Both companies face challenges in managing costs associated with AI investments. Microsoft, lacking its own silicon, is aggressively purchasing Nvidia chips, while Google uses its TPUs but also buys chips from other companies. This spending may temporarily impact profit and growth.
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While Microsoft and Google share a common message regarding the inflection point in AI investments, Microsoft investors seem more eager for further progress in this area compared to their Google counterparts.