Big Tech Rakes In the AI Revenue

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Oil prices jump to a new wartime high on fears of renewed escalation with Iran. Plus, AI finally starts making money for big tech, but not without a rethink of their balance sheets.

Bradley Olson (0:45)

They had tremendous cash flow, and that's kind of changing in order to afford the kind of spending that they're going to have to make. They're changing the way they operate, and they are becoming kind of more indebted, and using that to pay for AI infrastructure and data centers, and they're also cutting staff.

Luke Vargas (1:03)

And can LIV Golf survive without Saudi funding? It's Thursday, April 30th. I'm Luke Vargas for the Wall Street Journal, and here is the AM Edition of What's News, the top headlines and business stories moving your world today.

Big tech companies are starting to strike gold with artificial intelligence. Four of the biggest names in tech, Microsoft, Alphabet, Meta, and Amazon all reported earnings yesterday, showing that sales are growing thanks to the proliferation of AI tools. That progress, however, is coming at a steep cost, with capital expenditures for data centers and chips soaring. So what are investors making of it all? Bradley Olson is our Deputy Tech Bureau Chief and joins me now from San Francisco.

Bradley's companies together are spending more than $650 billion this year to build out AI infrastructure. That is more than the cost of the Apollo space program, the US interstate highway system, and even the US railroads built out back in the 1850s. It's crazy.

Bradley Olson (2:04)

Yeah, it just went up across the board and it seems each quarter the story is kind of the same. We're all just kind of waiting and saying, how high is the number going to go?

And how are we going to find new ways to understand what $200 billion means in spending? So Microsoft, I think, is up to $190 billion in the 2026 year. And all of the other companies went way up too. And so I think it's like every time it goes up, you have to find these new kind of historical comparisons because it's just hard to get your mind around just how much they're spending.

Luke Vargas (2:38)

And yet these businesses are signaling this spending is something they can accommodate that we should say Metta recently announced they're gonna lay off 10% of their staff in order to sustain this. So I guess it's not all coming without some adjustments to the balance sheet.

Bradley Olson (2:49)

Absolutely. I think in the end, these companies, at least kind of by the rubrics of Wall Street, were always well capitalized. They had tremendous cash flow.

And that's kind of changing in order to afford the kind of spending that they're going to have to make. They're changing the way they operate and they are becoming kind of more indebted and using that to pay for AI infrastructure and data centers. And they're also cutting staff.

You know, you mentioned Metta. That was one example. And Microsoft also offered buyouts. And they said it will be another year in which their headcount will go down.

Luke Vargas (3:25)

Brad, I think it's safe to say if these companies were paring down their cash holdings, you know, borrowing heavily to engage in this capex and there were no AI revenues to offset that, investors would have some big problems. And yet it seems like the revenue side of the AI buildout is now finally starting to show some signs of life across these earnings that maybe kind of these companies saving companies.

Bradley Olson (3:46)

Absolutely. You're seeing it in different companies manifest in different ways. So for meta, you know, it's kind of an advertising story. AI tends to help with ad targeting. I think that's happening a little bit with Google as well. And then with Google, you also have typical things like subscriptions, uses of Gemini, their AI model. And then you have people ordering Google's chips. And so Google kind of has a full stack of revenue opportunities, you know, ways to get customers in many different kinds of ways. Microsoft offers cloud access. And then the number of paying subscribers for Copilot went up about 33% and it's 20 million now. It's not a huge number when you look at the entire volume of Microsoft users and paying Microsoft users. But in the end, these numbers are starting to get high for all the different companies. And then, of course, Amazon's cloud growth, they have so many customers that are inside the AWS system. One thing that we saw even recently is OpenAI did this deal with Amazon and with Microsoft, so that OpenAI could be an option inside of what's called Bedrock, Amazon's platform for developing AI and AI agents. And so there's big opportunities for growth for Amazon as sort of a platform and a go-to place where you can go.