Tech Giants Are Spending Big On AI, But Is It Too Costly?

News has emerged of just how much the various tech giants around the world are spending on artificial intelligence (AI) projects. Tech leaders, such as Elon Musk and Mark Zuckerberg, appear to be locked in a battle to see just how much cash they can spend on making their system the best.

Zuckerberg has announced that Meta will spend over $37 billion on new infrastructure for AI this year. He also said that they will spend even more next year and that it is a bigger risk to not spend enough, rather than it being risky to spend too much.

A recent report in the New York Times summarized the situation: “In the last quarter alone, Apple, Amazon, Meta, Microsoft and Google’s parent company Alphabet spent a combined $59 billion on capital expenses, 63 percent more than a year earlier and 161 percent more than four years ago. A large part of that was funneled into building data centers and packing them with new computer systems to build artificial intelligence.”

Everyone is spending huge amounts on AI.

But investors are getting anxious. Finance companies such as Goldman Sachs and Sequoia Capital have questioned whether AI will ever generate the returns needed to justify the enormous amounts of cash being spent at present.

A Goldman Sachs research study from June 2024 stated: “What $1 trillion problem will A.I. solve? Replacing low wage jobs with tremendously costly technology is basically the polar opposite of the prior technology transitions I’ve witnessed in my 30 years of closely following the tech industry.”

The real issue here is that we don’t know what the killer app is going to be. This is the application that changes everything and makes all the investment worthwhile.

We have seen this before in technology. The introduction of the spreadsheet completely transformed management information in all industrial sectors – imagine having to manipulate spreadsheet data manually. That is seriously how it was once done – pencil and grid paper.

The smartphone was a similarly transformative technology – strongly assisted by the app store concept, which allowed users to customize their phones. Earlier phones could only ever use the software they were shipped with.

AI just hasn’t found a transformative purpose yet.

There are many immediate and very practical applications of AI. Look at how network security is now far better thanks to autonomous agents that explore the network looking for unusual user behavior. Look at how databases can be integrated and analyzed allowing AI to identify patterns or insight. Look at how automated services are dramatically improving — such as asking a company for information or help.

Some organizations are exploring innovative ways to use AI. Bletchley Park in the UK is where the famous World War Two codebreakers were based. Dr Alan Turing even wrote a famous paper on AI back in 1950. They are allowing visitors to directly ask Turing questions by creating an AI model that knows about all his published work. Why can’t we do the same with famous company founders at brands like Nike or Apple?

But although these are all interesting ideas, none of them is truly transforming any industry. Better chatbots aren’t the same as when electricity arrived or the first PC was created.

I wrote recently on this blog about the new book from Stephen Loynd. It’s worth going back to look at that article because I summarized Stephen’s ideas that we just don’t yet know how AI will change business in general, but when we figure it out it will be a complete transformation – like something we cannot even imagine at present.

Are the tech giants right to keep on spending vast amounts on a technology that has no specific revenue-generating purpose right now? Maybe they are, but only history can tell us who was right.

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