Despite Cost Cuts, Meta, Alphabet, And Microsoft Are Investing Heavily On AI

‍Jobs are being taken by AI

Big Tech is experiencing austerity in these times, which makes it quite a conundrum for companies that hope to stay on top of innovation for years to come. In a world where you are struggling between investing for the future and counting pennies, you are facing a new battle between man and machine, and it is being funded by the money saved when you fire employees. The AI arms race is on, and it is being funded by the money saved through terminating employees.

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In the earnings calls this week, Meta Platforms Inc., Alphabet Inc., and Microsoft Corp., all of which reported earnings this week, the term "AI" was used more than 200 times. Executives have been emphatically pledging that this is one area in which they will spend a huge amount of money — on servers and infrastructure, as well as on building it into user-friendly tools for clients, employees, and users of the company. These commitments come following breathless announcements of cutting spending, including over 40,000 jobs that have been eliminated from these companies in recent months, primarily through the elimination of those three companies themselves.

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Alphabet's Chief Financial Officer Ruth Porat said in an interview this week that the company remains committed to delivering long-term growth and re-engineering its cost base to create opportunities for investing in its most compelling growth areas. In corporate speak, that means: We are taking money away from things that we don't think will make our company more valuable and giving it to those that we think will. 

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Besides artificial intelligence, Alphabet also continues to attract a lot of cash through billions of dollars in buyback programs. As a result of its new $72 billion share repurchase program, the search giant is matching the amount it spent on R&D and capital expenditures last year. It ties last year's program for the largest share repurchase program in the company's history. 

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Alphabet could have put its cash to lower use by firing 12,000 people. Or by providing more office space to house the 12,000 employees whose jobs were cut in January.

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The story Meta's selling is similar. Despite slashing jobs like Alphabet and offering generous buybacks, Meta has been selling a similar story. Investors drove the stock up by 12% following its earnings release. Meta has announced a $40 billion share repurchase plan in February, following the $50 billion authorized 16 months earlier.

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A big part of the call was spent discussing how Meta is integrating artificial intelligence into their entire organization. The company is spending a lot of capital on infrastructure for existing artificial intelligence, like Facebook's algorithms for recommending content, and building generative AI systems. 

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As part of its restructuring strategy, the company has capped spending on capital expenditure to $90 billion, which is $11 billion less than what it was expecting when it decided to eliminate 21,000 jobs before it decided to make the cuts.

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Sophie Lund-Yates, principal equity analyst at Hargreaves Lansdown, says that penny-pinching your way to the top is a very difficult thing to do, which makes Meta walk a very fine line between simply keeping the lights on and securing a promising future that allows the company to maintain its status as a viable company.

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In my opinion, the fact that these companies are giving back money to shareholders seems to be giving them some extra time to figure out their long-term strategy.

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Although Microsoft did not present a fresh new buyback program, its chief financial officer, Amy Hood, did say that the company is “committed to leading the AI platform wave and investing in it.” Furthermore, Microsoft also vowed to keep operating expenses in check this year, despite the fact that the company laid off 10,000 employees.

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Technology companies have long been known to stockpile talent to avoid competition, but this trade-off is fascinating for companies that have long been known for stockpiling talent. In the end, Big Tech thinks that spending money on the machines is more important than investing in the people - particularly in the face of a lack of cash.