Who Pays For The AI Boom?

 

The hyperscalers, namely Alphabet, Amazon, Microsoft and Meta are the companies that give out most money to finance capital expenditures on artificial intelligence, AI mainly in the form of building out artificial intelligence, AI data centers and the accompanying infrastructure.

The second pillar that pays for the AI boom are the spending on AI compute tokens by corporations and individuals.

In 2026 Alphabet will spend circa 185 billion USDs, Meta will spend circa 130 billion USDs, Amazon will spend circa 200 billion USDs, Microsoft will spend circa 150 billion USDs.  

In 2027 Alphabet plans to spend circa 255 billion USDs, Meta plans to spend circa 170 billion USDs, Amazon plans to spend circa 230 billion USDs and Microsoft plans to spend circa 200 billion USDs according to analyst projections and WSJ and FactSet data estimates.

NVIDIA and SpaceX are also planning multi billion USDs capital expenditures on artificial intelligence, AI.

How are the hyperscalers, namely Alphabet, Amazon, Microsoft and Meta basically able to afford to spend more than 100 billion USDs a year, sometimes several hundreds of billions of USDs a year on artificial intelligence, AI capital expenditures?

The hyperscalers, namely Alphabet, Amazon, Microsoft and Meta each have more than 40 billion USDs on their balance sheet in the form of cash and short-term investments. In some cases of the hyperscalers, namely Alphabet, Amazon, Microsoft and Meta have even close or more than 100 billion USDs in cash and short-term investments.

In addition, the hyperscalers, namely Alphabet, Amazon, Microsoft and Meta plan to issue new equity as Alphabet did. Alphabet plans to raise 80 billion USDs of new equity to finance AI capital expenditures.

Are such huge multi billion USDs capital expenditures sustainable? 

Not according to some media reports.

Not in the long run. Up until now the hyperscalers, namely Alphabet, Amazon, Microsoft and Meta have been valued at more than 1 trillion USDs each because they were huge growth and multi billion USDs net profit cash generating machines. And they were asset light. Now, however, the hyperscalers, namely Alphabet, Amazon, Microsoft and Meta are becoming asset heavy with huge, multi billion investments in artificial intelligence, AI compute and data centers.

Moody's recently published a report saying that the large capital expenditures by the hyperscalers could threaten the credit quality of Microsoft, Amazon, Alphabet, Meta, Oracle and CoreWeave. 

It is not unfforeseeable that soon, in 2-4 years the hyperscalers, namely Alphabet, Amazon, Microsoft and Meta could start reporting yearly losses if they continue to invest close to 100 billion USDs or more each in AI infrastructure.

This will in turn affect their valuations and market capitalization.

If the hyperscalers, namely Alphabet, Amazon, Microsoft and Meta start making yearly losses their market capitalization could fall by more than 44 % from the current levels. Simply because the hyperscalers, namely Alphabet, Amazon, Microsoft and Meta from making huge profits will turn into loss making enterprises.

If, on other hand in 5 to 7 years the hyperscalers, namely Alphabet, Amazon, Microsoft and Meta's multi billion USDs investments in artificial intelligence, AI compute and data centers turn out to be cash positive, starts making hundreds of billions of profits for the hyperscalers, namely Alphabet, Amazon, Microsoft and Meta, then the hyperscalers, namely Alphabet, Amazon, Microsoft and Meta' market capitalization could more than double from current levels.

However, in order for the AI capital expenditure to return multi fold its money, the AI boom not only has to continue, but artificial intelligence, AI has to infiltrate almost every area of our lives, make us much more productive and able to enjoy leisure.

And not only that. Artificial intelligence has basically to devour other industries and start producing their revenue.

And now that is a bit farfetched assumption requiring quite a stretch of the imagination.

So, basically, the hyperscalers, namely Alphabet, Amazon, Microsoft and Meta are taking on a big risk with their multi billion USD investments each of them makes in artificial intelligence, AI compute and data centers.

NVIDIA and SpaceX also take on a big risk with their  artificial intelligence, AI compute and data centers investments.

The risk could turn out positive and AI could make extraordinary progress and build huge amounts of profits. 

Or the AI boom could turn into a bust defined by the Nasdaq Composite falling more than 62 % from its recent peak.