If a few months ago, when the words “artificial intelligence” were mentioned, everyone held their breath and pulled out their wallets to buy something artificial and intelligent, regardless of the price, now it seems that the euphoria is starting to recede a little bit and we have already reached a phase where investors are starting to ask: “How much will it cost and how much will we be able to earn?”.This is a quick review from Ivan Kompan, Edinburgh Business School analyst.
The question of AI project costs became central this week as major corporations reported quarterly results. Overall, the “Big Seven” remain financially strong, with little impact from high Federal Reserve rates on current outcomes and future plans. However, investors are increasingly questioning the returns on investments in emerging AI technologies, which continue to rise sharply.
Adding to the complexity, companies are reluctant to disclose AI revenue specifics, sticking to general statements while expenses climb. Microsoft leads in AI spending, investing $53 billion this year (28% of annual revenue). For comparison, its average capital expenditure over the past decade hovered around 12%. Meta plans $38–$40 billion (24% of projected annual revenue), up from a 19% decade average. Alphabet and Amazon follow with $15 billion (13%) and $11 billion (11%), respectively. Such heavy spending has raised market concerns, as returns remain uncertain.
Apple faced a different issue last quarter, incurring a $13 billion tax penalty in Ireland, which hurt net profit despite exceeding revenue forecasts. U.S. economic data also took center stage, with inflation (PCE Index) reported at 2.1% in September, the lowest since 2021 but slightly above the Fed’s 2% target. The core index rose 0.3% monthly and 2.7% annually, the highest since April, raising doubts about inflation control.
Finally, the labor market report revealed only 12,000 new jobs versus an expected 100,000, attributed to hurricanes, other anomalies, and a Boeing strike. Unemployment stayed at 4.1%, with wage growth up 0.4%. The Fed now lacks solid grounds for decisive rate cuts. Future forecasts remain uncertain, but the S&P 500 index is currently valued 50% above its median, the highest since 2000—an indicator worth reflecting on.
*And finally, we would like to remind you that the information you have just listened to is not an investment advisory. Remember – investments in the stock market are always tied up with financial risks. So be careful and cautious.
