For some hyperscale firms, the risk of investing in generative artificial intelligence, though real, is mitigated by the ability to grow revenues faster than the investments drag down earnings. In other words, the risk of over-investing in generative AI is lessened if firm revenue growth is high enough to support earnings growth despite the AI investments.
Generally speaking, strong revenue growth might have to be stronger than seen in the third quarter 2024 reports, to mostly alleviate investor concern about AI capex. A reasonable person might doubt that most, if not all the firms, can do so on a consistent basis.
And that means some volatility of share prices.
Third quarter financial results from artificial intelligence investors Alphabet, Meta, Microsoft and Amazon predictably showed the perceived importance of AI capex on earnings. Such capex keeps growing, leading to concerns about monetization and pace of revenue growth.
The other issue is that the magnitude of spending compared to earlier product development seems to have increased by an order of magnitude for cloud computing, compared with earlier products, while another order of magnitude increase in investment seems to be happening with generative AI.
It might be a stretch to argue that revenues will increase by an order of magnitude for any of the investing firms, with one or two salient exceptions. As was the case for search, social media and e-commerce, the creation of huge new industries might support an order of magnitude increase in revenue.
And that is the prize.
No comments:
Post a Comment