IT News on October 31: According to a report by Reuters on the 30th, the market value of the NASDAQ 100 index is expected to evaporate by over $2 trillion in October (Note from IT: The current exchange rate is approximately 13.34 trillion yuan). As tech giants release their financial reports, investors' doubts about the return on investment in AI are deepening: How long will it take to recoup the costs incurred in investing huge amounts of money in building the AI infrastructure?
If the losses reach this scale, the evaporated market value will be slightly higher than the overall valuation of SpaceX. Affected by the cooling of the investment boom in AI, the NASDAQ 100 index has fallen by more than 5.8% since October. At the same time, technology giants such as Meta, Alphabet, and Amazon are competing to expand their AI infrastructure and have further raised their spending expectations.
The continuously expanding AI investment is causing concern among investors. Especially with rising borrowing costs, companies that invest in AI through debt not only have to bear higher costs but also find it more difficult to justify such substantial expenditures.
Apple will release its financial results next week, while AI, the industry leader NVIDIA, will have to wait until mid-November. The core search advertising business of Alphabet fell short of expectations, and the rate of cash consumption accelerated sharply, resulting in the stock price experiencing the largest single-day percentage decline in history on Thursday.
Meta plans to raise funds through a record $97.5 billion (about 650.283 billion yuan at current exchange rates), sparking concerns among investors about equity dilution. As the expenditures of AI continue to rise, the market is also worried that other tech giants will become increasingly dependent on capital market financing.
Microsoft and SpaceX have shown different performances. The financial results of both companies indicate that the investments made by AI are beginning to yield results.
John Billton, head of global strategic research at JPMorgan Chase's Multi-Asset Solutions department, admitted, "We may have overestimated the potential for growth, but these companies as a whole have not experienced negative growth. Our demand for data is endless and continues to grow."
It is reported that Microsoft plans to issue approximately $25 billion (about 166.739 billion yuan at current exchange rates) in U.S. investment-grade bonds for the first time in over nine years. In the past four years, technology giants such as Meta, Amazon, and Alphabet have also raised tens of billions of dollars by issuing bonds, and investors have begun to worry that these companies are becoming overly dependent on bond market financing.
Morgan Stanley expects that next year, global AI infrastructure capital expenditure will exceed $1 trillion (equivalent to approximately 6.67 trillion yuan at current exchange rates).
AI Enterprises are increasingly relying on debt financing, which also exposes investors to new risks. Previously, the market generally believed that companies at the core of the AI boom could withstand macroeconomic pressures, but the continuous expansion of debt financing has questioned this view.
Worries are not only affecting the stock market but have also spread to the credit market. Investors are beginning to reflect potential risks in asset prices: if financing costs continue to rise, and the returns on AI investments fall short of expectations, even companies that were previously considered to be more resilient to risks may face financial pressure.
Since the launch of ChatGPT in 2022, the revenues of the seven giants in U.S. tech have been strong, reflecting strong market demand. Even though it is still unclear when investments in AI will yield returns, the continuously growing revenues may be the reason why investors are initially willing to support such substantial expenditures.
As one of Amazon's main sources of profit, its cloud computing business, Amazon Web Services (AWS), continues to grow at an accelerated pace. The revenue growth rate of AWS exceeded market expectations, and the company also holds an optimistic attitude towards its future prospects. Microsoft, in its latest financial report, also expects its cloud business to maintain strong growth.
Tech giants have previously invested heavily in building infrastructure to drive the development of cloud computing, online advertising, and e-commerce businesses. The current craze has further skyrocketed capital expenditures to an astonishing scale. AI
JPMorgan Chase estimates that by 2030, global AI capital expenditure will reach $5.5 trillion (about 36.68 trillion yuan at current exchange rates), with $900 billion (about 6 trillion yuan at current exchange rates) to be invested alone in 2026.
JPMorgan analysts pointed out that the capital expenditures of Amazon, Alphabet, Meta, Oracle, and Microsoft this year are likely to equal the cumulative investment of these five companies since they launched ChatGPT in November 2022.
