AI is forcing Big Tech to do something it’s never done: Spend more than it earns, and Wall Street hates it

Wall Street spent years demanding AI investment, then panicked when AI investment showed up on the balance sheet: If Alphabet keeps printing record profits while building the infrastructure for the next decade, this may end up looking more like impatience than prudence. The market loves growth, until it has to pay for it.

That’s because the amount of AI investment looks like orders of magnitude more than anyone is willing to pay for AI products.

They were happy about spending billions, but now the bubble is into the trillions and there isn’t tens of trillions in market demand to make an investment that big pay off.

That assumes demand is fixed. Historically, the biggest technology shifts created entirely new markets that barely existed beforehand. Almost nobody predicted today’s cloud or app economy from early internet revenue. AI spending could still prove excessive, but current demand is a poor ceiling for what future demand might become.

Current buyers are looking to cut back on spending, rather than dramatically increase. And that’s based on current prices which are being subsidised by burning investor money, not the prices they need to charge to make a profit.

Cloud and apps didn’t need trillions in investment to still not get off the ground. There isn’t really any scenario in which current AI spending doesn’t turn out to be excessive.

Maybe, but »excessive investment« and »failed technology« aren’t the same thing: Railroads, fiber optics and the dot com era all burned absurd amounts of capital, yet the infrastructure outlived the investors. AI could follow the same pattern: terrible returns for today’s shareholders, enormous value for tomorrow’s economy.