AI Revenues Are Growing Fast, But Not Fast Enough to Justify Trillions
America's biggest technology companies, including Amazon, Google, and Microsoft, are pouring record sums into artificial intelligence infrastructure, with spending projected to reach $1.4 trillion by 2027. Despite this historic investment surge funded by massive borrowing, the returns on these trillions of dollars remain deeply uncertain. The rapid growth in AI revenues is failing to keep pace with the staggering capital expenditure required to power the next generation of chips and data centers.
Last year America's biggest technology companies spent $450bn on infrastructure, much of it to power artificial intelligence. This was just an amuse-bouche.
- jsnell
> A back-of-the-envelope calculation finds that covering AI capex through identifiable AI income requires revenue on the order of $2.5trn per year,
Ok, so what is the botec? They don't say, but it's probably something like "next year's $1.5T/year in capex * 50% return on invested capital + a little bit extra for opex".
Obviously a given year's capex doesn't need to return its investment immediately the following year, but over it's ~5-7 year depreciation period. So in making this botec, they're not just taking next year's capex, but extrapolating it to a steady state of $1.5T/year in capex.
But why would that level of spending be steady? It's exceedingly unlikely to be. Future capex is not locked in. It's contingent on revenue and revenue growth. AI revenue has been growing faster this year than even the most optimistic projections suggested. It's hardly a surprise that capex projections were dialed up. If revenue growth lagged instead, it would go the other way.
(You need only look at Google Cloud growth and margins to get an idea of how good an investment last year's AI capex was. But at the time, the arguments for it being crazy were identical to those made today, except with the numbers substituted.)
There's a separate issue, which is that you can't really think about this on a sector-wide basis. In most businesses there will be winners and losers, demanding everyone be a winner is unrealistic. E.g. right now anyone with the business model of renting out the compute is be […]
- iammjm
“ According to Mr Yotzov’s study, nine in ten executives report no impact of ai on their firm’s productivity over the past three years.”
Brutal stuff.
- an0malous
> A back-of-the-envelope calculation finds that covering aicapex through identifiable ai income requires revenue on the order of $2.5trn per year, more than tech’s entire combined revenue today.
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> All these complex calculations roughly tally with a much simpler one: adding up the ai revenue of the firms selling most of the ai. Anthropic pulls in perhaps $75bn, annualised; Openai makes tens of billions; Google, via its ai model Gemini, and Microsoft probably get a bit less. SpaceX may have a few billion dollars’ worth of revenue from enterprise aithis year. Meta also makes a few bucks from ai. Add this up and you land at roughly $150bn a year.
- pu_pe
> Exponential View, a consultancy, counts $175bn of generative-AI revenue, on an annualised basis, in June. In a recent paper Anton Korinek of Anthropic and Patrick McKelvey of the Bank of Canada estimate total “AI services” revenue. Adapting their methodology, we reckon this was $220bn (again annualised) in the first quarter of this year. Ramp’s data imply that 2-3% of business spending now goes on AI, pointing to $170bn a year.
So between $170bn-220bn in annualized AI revenue today. Maybe it doesn't cover trillion-dollar bets but this is a very substantial number.
- softwaredoug
You really see the first mover disadvantages in US AI labs. And how second movers (open Chinese labs) can disrupt them. First movers tend to get overcapitalized and way ahead of their skis. You saw a smaller version of this in the vector database market (remember that?) where companies like Pinecone were getting billion+ valuations for capabilities which now seem like a commodity. There's vector DB companies now with much less debt / VC obligations that don't need to clear insane revenue levels to justify investment.