Seven Weeks of Artificial Intelligence Investments, Revenue, and Spending, and What They Tell Us

A massive amount of money is being spent on developing, preparing for, buying, and implementing AI.  What has it caused, and how does AI now look overall?

Before the articles below came out “Is the AI bubble actually bursting?” (Patrick Kulp, Tech Brew, August 8^th).  Concerns here were that “a stock market rout and big questions about spending continue to stoke worries,” that “some high-profile reports this summer questioned AI’s money-making potential relative to its enormous cost,” that “Microsoft, Alphabet, and Meta didn’t do much to soothe investors seeking temperance in AI capital expenditures,” and that we have reason to expect “a “major course correction” in AI hype as revenues fail to keep pace with spending.”

Since then, there have been strong and weak AI financial outcomes.  On August 23rd, Courtney Vien told us, in CFO Brew, “How Walmart’s seen ROI on gen AI.”  “During its last earnings call, the giant retailer reported 4.8% revenue growth, bolstered by 21% growth in its e-commerce function,” which “Walmart executives credited… to several factors… but one stood out:  generative AI.”  The technology had helped with “populating and cleaning up” the company’s gargantuan “product catalog,” of which the new version has also “given Walmart more insight into its customers.”  AI has also been “driving its impulse sales” through improved “cross-category search.”

Another such success story was the subject of “Nvidia’s earnings beat Wall Street’s estimates as AI momentum continues” (Eric Revell, Fox Business, August 28^th).  In its “second-quarter earnings report,” earnings per share reached $0.68 instead of the projected $0.64, and revenue came in at $30.04 billion instead of $28.70 billion.  Although it started production of a new AI-dedicated chip, the Blackwell, demand for the current Hopper version has “remained strong.”

A major consumer of Nvidia’s chips rates to buy many more, as “OpenAI Is Growing Fast and Burning Through Piles of Money” (Mike Isaac and Erin Griffith, The New York Times, September 27^th).  Although that firm “has been telling investors that it is making billions from its chatbot,” “it has not been quite so clear about how much it is losing.”  While “OpenAI’s monthly revenue hit $300 million in August, it “expects to lose roughly $5 billion this year after paying for costs related to running its services and other expenses like employee salaries and office rent.”  It spends most, though, on “the computing power it gets through a partnership with Microsoft, which is also OpenAI’s primary investor.”  Even if company projections showing a much brighter future will come to pass, OpenAI’s financial present is dark.

On industry results, Matt Turner reported those from the previous week from five of the largest companies in the November 3^rd “Insider Today” in Business Insider.  Overall, he said they were “beating estimates and committing billions to AI.”  Alphabet’s Google-branded “cloud business benefited from AI adoption, posting a 35% year-over-year increase in revenues.”  Amazon did the same, with AI-assisted cloud revenues growing 19%.  Apple’s loss of Chinese revenue “left investors underwhelmed,” and it is uncertain if “new Apple Intelligence features help juice sales.”  “Meta beat estimates, though user growth came in below expectations,” and CEO Mark Zuckerberg “promised to keep spending on AI.”  Microsoft also did better than they expected, “but concerns around capacity constraints in AI” hurt investor reactions.  Overall, AI seemed to be producing real money for these firms, but related revenue growth has hardly been explosive.

A useful summary, “How companies are spending on AI right now,” by Patrick Kulp, came out on November 12^th in Tech Brew.  In an in-effect response to the first article above, also written by Kulp, the piece started with “Despite some worry about a possible AI bubble earlier in the year, businesses are continuing to spend on generative technology – and investors are still eyeing it as a growth area.”  Another conclusion here was that of “AI becoming an office staple” with 38% third-quarter-on-second-quarter growth of “business spending on AI vendors.”  Although “half of the top 10 fastest growing enterprise software vendors on the platform were AI startups,” “OpenAI’s ChatGPT still reigns supreme,” but companies buying that have been increasingly likely to get other firms’ products as well.  Additionally, we have “AI still fueling VC growth,” as “three-quarters of limited partners surveyed… said they plan to increase AI investments in the next 12 months, with cybersecurity, predictive analytics, and data centers garnering the most interest.”  Note that “autonomous vehicles and computer vision ranked last for sub-fields of AI catching investor attention.”  Yet, per an Accenture report, there has been a “productivity flatline,” despite more AI use, over the past year.

What does all this reveal about artificial intelligence?  It is not vaporware.  Demand for it is real, in fact huge.  For some applications it is strongly objectively beneficial.  But it still has problems, with, along with many more mentioned in previous posts, profitability and productivity.  We don’t know how comprehensive its advantages will turn out to be.  But it is real, and it is progressing.  From there, we will just need to stay tuned.