Big Tech's Generative AI Spending: A Shot in the Dark?

Big Tech companies such as Alphabet, Microsoft, and Meta are investing heavily in generative AI, with plans to spend around $100 billion in 2026. However, the impact of this technology on revenue is not expected to be significant for at least the next couple of years. The spending is considered a "staggering shot in the dark" as the technology is still in its early stages and its ultimate use is unclear. Microsoft's spending on AI is more solidly grounded, driven by a burgeoning backlog of business and a shortage of data centers.

Big Tech companies like Alphabet, Microsoft, and Meta are pouring significant resources into generative AI, with plans to spend around $100 billion in 2026. However, the impact of this technology on revenue is not expected to be substantial for at least the next couple of years, according to recent earnings reports [1]. This substantial investment is seen as a "staggering shot in the dark," as the technology is still in its early stages and its ultimate use remains unclear.

Microsoft's spending on AI is more solidly grounded, driven by a burgeoning backlog of business and a shortage of data centers. The company's Azure cloud platform saw a 34% surge in revenue, but this growth is largely attributed to the broader move by companies to the cloud rather than generative AI [1]. While many customers are piloting the new form of AI, few have implemented it on a full-scale basis.

The tech giants are investing heavily in generative AI due to two primary beliefs. First, they believe that the technology is about to reach a level where it becomes truly useful, and they are best positioned to figure out its applications. Second, they have the financial wherewithal to build and deliver generative AI and do not want to risk being left behind by underinvesting [1].

Despite the uncertainty surrounding generative AI's impact on revenue, the tech giants are confident that their investments will pay off in the long run. They have the audience and are creating the infrastructure necessary to capitalize on the technology once it becomes more useful. The urgency to show a payback from generative AI spending will only intensify as the spending weighs more on profits [1].

Microsoft's capital spending has jumped 130% in the past two years to $66.5 billion, but its free cash flow still advanced 20%, and it didn't need to interrupt the $40 billion it pays out each year in dividends and stock buy-backs [1]. However, with 2026 shaping up to be another big year of investment, the spending will start to weigh more on profits.

The DeepSeek shock this year was a warning that smaller, cheaper AI models, made widely available, could pose serious competition. Big Tech may be basking in Wall Street's approval this week, but the urgency to show a payback from generative AI spending will only intensify [1].

References:
[1] https://www.irishtimes.com/business/2025/08/04/big-techs-spend-on-generative-ai-still-a-staggering-shot-in-the-dark/