Investors are worried about escalating artificial intelligence capital investment, which by some estimates is as much as 10 times the revenue currently generated by those investments.
Amazon is no exception. Compared to the two-decade period 2000 to 2020, Amazon capex from 2020 to 2024 has grown by an order of magnitude.
Generative AI is "a really unusually large, maybe once-in-a-lifetime type of opportunity," according to Andy Jassy, Amazon CEO.
"When we go through a curve like this, the risk of underinvesting is dramatically greater than the risk of overinvesting for us here,” said Sundar Pichai, Alphabet CEO.
"This next generation of AI will reshape every software category and every business, including our own,” said Satya Nadella, Microsoft CEO.
Capex and investments in generative AI by Microsoft, Alphabet, Meta and others similarly have exploded.
source: Sherwood News
History suggests we should expect over-investment and a period of deflated expectations at some point, as it has happened in the past with new technologies. On the other hand, there were clear eventual winners.
Technology | Peak Hype Period | Investment Bust | Key Factors |
Personal Computers (PCs) | Late 1970s – early 1980s | 1983–1985 | Over-saturation of the market, reduced margins, company bankruptcies. |
Dot-com Boom (Internet) | Mid-to-late 1990s | 2000–2002 | Dot-com bubble burst due to unsustainable valuations and lack of profitability. |
Semiconductors | Late 1990s | 2000–2002 | Overcapacity and falling demand post-dot-com collapse. |
Telecom Infrastructure | Late 1990s | 2001–2003 | Massive overbuild in fiber networks; market collapse post-dot-com. |
Smartphones (App Ecosystem) | Mid-2000s – early 2010s | 2012–2014 | Declining app startup investments after initial app boom. |
Social Media Startups | Mid-to-late 2000s | 2014–2016 | Increased competition, monetization challenges, and platform saturation. |
Cloud Computing | 2010s | N/A (so far) | Sustained investment but potential future correction as market matures. |
Blockchain/Cryptocurrency | 2017 | 2018 | ICO bubble burst; speculative over-investment and regulatory concerns. |
AI/Generative AI | 2021–present | TBD | Potential for over-investment in AI startups; still ongoing. |
Virtual Reality (VR/AR) | Mid-2010s | Late 2010s | Slow adoption, high costs, and unmet expectations in mass market. |
3D Printing | Early 2010s | 2014–2015 | High expectations; consumer market failed to materialize as expected. |
Given that so much AI infrastructure investment is in physical facilities and capabilities, the lag between revenue generation and investment is not too hard to understand.
On the other hand, generative AI is probably going to feature a market leadership structure not unfamiliar to us, with just a few share leaders. So even if some of the investment proves rewarding, not all of it, by every would-be contender, will be.
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