Is Big Tech spending too much money?

Katie Martin (0:06)

Pushkin. Big tech companies are big spenders. Like seriously, these guys are not mucking around. One of the biggest is Meta, the company behind Facebook, Instagram and WhatsApp. Its shares took a massive knock the other day, wiping a cool $200 billion worth of its value off after it said it would spend, get this, $72 billion on AI stuff this year, and a quotes, notably larger amount in 2026 A few dozen billion here, a few there, and soon enough, you're talking about some serious money. Now, the big reason markets have not been freaking out about all this big tech spending is that the companies have been doing this out of their own cash. Well, guess what? Now, Meta has issued a $30 billion bond. So today on the show, we're asking, literally what the hell?

Are these just like huge spending machines? How come this is all okay? This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I'm Katie Martin, a markets columnist at the FT in the allegedly broke, destitute, crime-infested hellhole that is London. It's actually fine. Don't listen to that Elon Musk guy. And I'm joined down the line by a little twofer for you here listeners. Firstly, the big fella, Rob Armstrong, who you all know and largely tolerate from the Unhedged newsletter. And secondly, by Hull's finest, John Foley from the FT's Lex Column, both in New York. John has promised to serve full finance bro here today listeners. Together, we are joined by a love of cheap plastic watches, us three, and by a fascination into big tech and big markets. So John, FT's super fans are well aware of the Lex Column, but you know, what is it? What are you doing over there, John Foley?

John Foley (2:02)

Well, Katie, the Lex Column is we're an opinion column, and we write short, punchy opinion articles on companies and finance and deals and investment for people who have not much time and, like me, very short attention spans.

Katie Martin (2:18)

Lex, ladies and gentlemen, is the true brains behind the FT operation. So with that in mind, let's all assume you know what you're talking about. John, please mansplain to me all of this craziness. You get extra points for very large numbers. What are big tech companies spending all these big bucks on?

John Foley (2:36)

Well, there are two kinds of big number that are slightly freaking some investors out at the moment after the earnings that were released over the last couple of weeks. One is the amount that they're spending their capital expenditure sums, which are now running around, according to Morgan Stanley, about $620 billion next year of cloud computing.

Katie Martin (2:56)

I mean, who's counting at this point? That's a lot of money, isn't it?

John Foley (2:58)

That's between 11 companies, and most of it is actually the big four. It's Meta Platforms, which owns Facebook, it's Amazon, it's Google, Google's parent, Alphabet, and it's Microsoft.

Rob Armstrong (3:07)

I have numbers here. Warning, numbers incoming. Those four, Alphabet, Meta, Microsoft, Amazon. Their expected capital expenditure next year, respectively $107 billion, $104 billion, $103 billion, $122 billion.

So, that's 400, almost 500, $450 billion worth of CapEx. Just from those four. It sure is.

Katie Martin (3:33)

That's number one, people.

John Foley (3:35)

And it's being used to build these big data centers, right? Big warehouses with servers in that are going to be used to train and run AI models. So, that's the first big number that are freaking people out. And the number is getting bigger and bigger every single time. And last week, we had all of those companies, Microsoft, Meta and Google, explicitly saying and Amazon implying that they're going to quite significantly increase their spending next year. Meta said it was going to notably increase. Google said significantly increase. So, investors are like wondering how big these numbers can get. And particularly Meta's case, Mark Zuckerberg, who runs Meta and founded Facebook, is saying that he's going to aggressively front load spending and that you never want to hear those words.

Rob Armstrong (4:18)

And by the way, it wasn't restricted to capital investment. They also these four companies or at least three of them suggested there would be pretty significant increases in operating expense. So they'd be spending more on people, on depreciation, which is what capital expenditure becomes when it gets old. And so that's a part of it too.

John Foley (4:39)

Well, also for Meta, if you think Meta, all the data centers that Meta builds, and this is a difference between Meta and its peers, are for its own use. It doesn't rent service space out to other people like Google does. So Meta, everything is for it to make its own AI models super amazing. But it's also, on top of that, to your point, Rob, about operating expenses, as well as building this stuff which comes out as CapEx, it's also paying other companies to use their space, which comes out as Opex. So they're spending increasingly large amounts on data center capacity that isn't theirs. But it just suggests that their appetite is limitless. It's just spiraling outwards.