This week, the "AI leader" Nvidia staged a roller coaster ride, and once fell 7% on Tuesday, and soared nearly 13% overnight, adding a staggering $330 billion in market value in a single day, and U.S. technology stocks also followed the "jump up and down". And on Thursday, Nvidia fell again, closing down nearly 7%.
Nvidia's volatility has even surpassed Bitcoin's, with data showing that Nvidia's 30-day options implied volatility has recently soared from 48% to 71%, while Bitcoin's DVOL index, a measure of 30-day implied volatility, has fallen from 68% to 49%.
Behind the extreme turmoil is the cost shadow looming over the tech giants, and the market is increasingly concerned about the return on huge AI investments.
As the tech giants have released their earnings reports one after another, the results have shown that AI capital expenditures are so high, while the revenue has not far exceeded expectations, showing corresponding scale growth, the market is running out of patience, and technology stocks have suffered a round of heavy blows.
More importantly, for them, AI investment is not just the pursuit of incremental profits, but has become a survival problem, and the risk of underinvestment is far greater than the risk of overinvestment.
Firmly "burn money"
In the face of market concerns, tech giants unanimously said that they would firmly "burn money".
Overnight, Meta released its second-quarter earnings report, revenue and earnings were higher than expected, the capital expenditure in the quarter was smaller than expected, and the upper limit of the range of capital expenditure for the whole year did not change but the lower limit was raised by $2 billion.
At the same time, Meta emphasized that capital expenditures will increase significantly in 2025, and infrastructure costs are an important driver, which will continue to support AI research and product development efforts.
Similarly, Microsoft has also firmly stated that it will continue to soar AI spending, with Microsoft's capital expenditure surging 77.6% year-on-year to $19 billion in the second quarter, almost all of which was spent on artificial intelligence-related spending, and the annual capital expenditure in fiscal 2024 exceeded the $50 billion mark
Brett Iversen, Microsoft's vice president of investor relations, said the company will continue to increase spending to meet "strong customer demand" going forward, and expects capital spending in FY2025 to be higher than in FY24.
AI investments are currently contributing to growth
The tech giants also gave detailed explanations on the issue of AI returns in the call, calming some of investors' concerns.
Let's start with Microsoft, which focused on the growth that AI has brought to Azure, saying that the number of Azure AI cloud service customers has increased by nearly 60% in the most recent quarter, and the average customer spend has also risen.
Microsoft also explained that part of the slowdown in Azure is due to a shortage of GPUs, and Microsoft said that the capacity of its Azure AI services has been limited due to the shortage of AI GPU servers, which will continue until the end of the year, which clearly shows the strong demand for AI from enterprise customers.
Second, Meta emphasized how AI can help the growth of the advertising business, Zuckerberg said in the earnings call that AI has improved the recommendation function, helped people find better content, and made the ad experience more effective, and these products are already products at scale. Meta's ad sales grew 22% in the second quarter, double the growth of rival Google.
There are also analysts who mentioned that the AI strategy has led Meta to rebirth from the trough of the previous two years, and the analysts said that Meta used AI to rebuild the ad tech stack, change the user interface, bring more user engagement, and now it is reflected in revenue and profits, Meta has indeed solved some of the concerns and storms from a few years ago, and has done a great job of integrating AI into their ecosystem.
In addition, Pichai, CEO of Google's parent company Alphabet, mentioned that the company has analyzed every dollar of AI investment and sees "tremendous momentum" from AI investment.
Against this backdrop, it seems reasonable for Alphabet and Microsoft to increase capital spending by 91% and 78% respectively in the most recent quarter, and to commit to maintaining active investment in the coming year.
Chip stocks continue to outperform
The resolute investment of tech giants in AI is bound to further increase spending on hardware such as chips, which will bring benefits to Nvidia and other chip companies.
U.S. technology stocks ushered in a big rebound overnight, with Nvidia up 13%, Broadcom up 12%, ASML ADR up 8.89%, and Qualcomm closing up more than 8%.
A number of previously released financial reports have shown that chip giants are accelerating their growth on the AI wave. AMD's performance in the second quarter was outstanding, with data center revenue doubling, AI chips in short supply, and quarterly revenue exceeding the 1 billion mark; TSMC's second-quarter performance also blossomed in full swing, with sales, net profit, and gross profit margin all exceeding expectations.
TSMC CEO Wei Zhejia said the company will more than double the production capacity of CoWoS, an advanced chip packaging technology, by the end of 2024. However, even so, TSMC may not be able to meet actual customer demand until 2025 or 2026.
AMD CEO Lisa Su raised his 2024 AI data center GPU revenue forecast from $2 billion to more than $4.5 billion. She also noted that the supply chain for AI GPUs will remain "tight" until 2025, despite the ramp-up of production capacity in the second half of the year.
AI investment has become a matter of survival
What's more, concerns about the return on AI investment may be missing a key point:
It's not just about the incremental revenue from specific AI functions, it's about the reconfiguration of the entire computing platform, comparable to the shift from mainframes to PCs in the 80s of the 20th century. In this new era of AI computing, every company must upgrade its infrastructure to remain competitive. For companies, investing in AI has become a matter of survival, rather than just the pursuit of incremental profits. Businesses that don't invest in AI will face serious challenges if their competitors are able to provide better customer service with AI chatbots or leverage AI design tools to develop products faster and more comprehensively.
Deutsche Bank also noted in its analysis:
So far, revenue has been largely confined to the cloud business area, where enterprises train and run AI models. However, outside of the cloud business, the return on investment is more qualitative than quantitative, and the return on AI investment is difficult to measure in concrete numbers.
This echoes the previous statements of the tech giants, who would rather overinvest than underinvest, because the competition in the tech industry means "nothing".
Meta CEO Mark ·Zuckerberg noted in a podcast that the company has spent billions of dollars on Nvidia's GPUs to develop and train advanced AI models to ensure Meta remains a leader in the AI space. Because the consequence of falling behind is that you're going to be disadvantaged in the most important technology for the next 10 to 15 years. Google CEO Sundar · Pichai expressed a similar view: AI is costly, but underinvestment is more risky. Google may have invested too much in AI infrastructure, mainly including buying Nvidia's GPUs. Even if the AI boom slows, the data centers and computer chips that companies buy can be used for other purposes. For us, the risk of underinvesting is far greater than the risk of overinvesting.
Large manufacturers are still determined to burn money, and upstream chips are still making money, but the market is still worried about the ability of downstream monetization.
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This article does not constitute personal investment advice, does not represent the views of the platform, the market is risky, investment needs to be cautious, please make independent judgment and decision-making.