In Race to Build A.I., Tech Plans a Big Plumbing Upgrade

If 2023 was the year of the AI ​​chatbot in the tech industry, 2024 will be the year of AI deployments. It may not sound all that exciting, but the industry's AI boom is quickly seeing tens of billions of dollars being spent on the technology behind the scenes.

Companies from Amazon to Meta are modernizing their data centers to support artificial intelligence. They are investing in huge new facilities, while even countries like Saudi Arabia are racing to build supercomputers for AI. Almost everyone who has their foot in technology or has huge amounts of money is apparently going on a spending spree that some believe could last for years.

Microsoft, Meta and Google's parent company Alphabet said this week that they collectively spent more than $32 billion on data centers and other capital expenditures in the first three months of the year alone. All companies said in discussions with investors that they had no plans to curb their AI spending.

In the clearest sign that AI has become a story about building a massive technology infrastructure, Meta said Wednesday that it will have to spend billions more on chips and data centers for AI than it previously announced.

“I think it makes sense to get into it, and that’s what we’re going to do,” Meta Chief Executive Mark Zuckerberg said in a call with investors.

The eye-popping spending echoes an old Silicon Valley parable: The people who made the biggest fortunes in the California Gold Rush weren't the miners — they were the people who sold the shovels. Undoubtedly, the most obvious AI winner is Nvidia, whose chip sales have more than tripled in the last year.

The money being poured into technology to support artificial intelligence is also reminiscent of the spending habits of the 1990s dot-com boom. For all the excitement surrounding web browsers and new e-commerce sites, the companies that made the real money were software giants like Microsoft and Oracle, chipmaker Intel and Cisco Systems, which made the equipment that linked these new computer networks together.

But cloud computing has created a new challenge: With most startups and even large companies in other industries contracting with cloud computing providers to host their networks, the tech industry's biggest companies are now spending big in the Hope to attract customers.

Google's capital expenditures – mostly the money that goes into building and equipping data centers – nearly doubled in the first quarter, the company said. Microsoft's rose by 22 percent. Amazon, which reports earnings on Tuesday, is expected to contribute to that growth.

Meta's investors were dissatisfied with Mr. Zuckerberg and caused his company's stock price to fall more than 16 percent after the conference call. But Mr. Zuckerberg, who just a few years ago was pilloried by shareholders over a planned buying spree for augmented and virtual reality, made no apology for the money his company is pouring into AI. He urged patience, possibly for years.

“Our optimism and ambition have just grown significantly,” he said.

Investors had no problem absorbing Microsoft's spending. Microsoft is the only major technology company to disclose financial details of its generative AI business, which it says has contributed to more than a fifth of the growth in its cloud computing business. That amounted to $1 billion in three months, according to analyst estimates.

Microsoft said its generative AI business could have been even bigger – if the company had enough data centers to meet demand, underscoring the need to expand further.

The AI ​​investments enrich Microsoft's core cloud computing offering Azure and help attract new customers. “Azure has become a go-to resource for pretty much anyone running an AI project,” Microsoft CEO Satya Nadella said Thursday.

(The New York Times sued Microsoft and its partner OpenAI in December for copyright infringement of news content related to their AI systems.)

Google said its cloud division's revenue rose 28 percent, including “increasing contribution from AI.”

In a letter to shareholders this month, Amazon Chief Executive Andy Jassy said that significant attention had been paid to AI applications such as ChatGPT, but that the opportunities for further technical efforts around infrastructure and data were “gigantic.”

For computing infrastructure, “the chip inside is the key,” he said, emphasizing that reducing the cost and increasing the performance of the chips is critical to Amazon's efforts to develop its own AI chips.

The need for infrastructure can generally be divided into two areas: First, it's about building the largest, most advanced models, which some AI developers say could soon exceed $1 billion in each new round. Executives said the ability to work either directly or with partners to develop cutting-edge systems is critical to staying at the forefront of AI

And then there's what's called inferencing, or querying the models to actually use them. This could mean customers accessing the systems, such as an insurer using generative AI to summarize a customer complaint, or the companies themselves building AI directly into their own products, as Meta recently did by embedding a chatbot assistant into Facebook and Instagram did. That is also expensive.

Building and equipping data centers takes time. Chips are subject to supply bottlenecks and expensive production. Susan Li, Meta's chief financial officer, said the company is building “fungibility” with such long-term bets. She wants leeway to change how the infrastructure is used if it turns out the future isn't going quite as she expects.

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