Hello and welcome to Eye on AI. In this edition…Nvidia becomes the first $5 trillion market cap company…Anthropic finds AI models have ‘introspection,’ of a kind…and Meta, Alphabet, and Microsoft tell investors just how much they’ve been spending on AI data centers.
Hello, it’s Jeremy here. I’m just back from Fortune Global Forum in Riyadh, where AI was very much a central feature in many of the discussions. I will provide a few insights from what I learned there.
Of course, there was a lot of discussion at the event about whether there’s an “AI bubble”—and that was before we got the latest earnings and cap ex numbers from Meta, Microsoft, and Alphabet. Wall Street’s disparate reactions to the companies’ quarterly report cards show the market’s growing impatience to see tangible results from hefty AI investments. They will only support companies who can show they are seeing notable revenue impact today.
Why the market reacted so differently to Meta’s, Microsoft’s, and Alphabet’s capex numbers
Consider Alphabet, which saw its shares climb after its earnings report. With its quarterly search revenues growing 14.5% year-over-year, and cloud revenues up 32%, Alphabet continues to defy concerns that AI poses an existential innovator’s dilemma to its core advertising-based business model. By contrast, Meta said capital expenses on AI data centers next year would be even larger than the already whopping $70 billion to $72 billion it’s spending this year as CEO Mark Zuckerberg races to build “super-intelligence,” an incredibly ambitious effort with limited immediate revenue impact. Investors weren’t having it, and Meta’s shares got hammered, dropping 9% in pre-market trading.
Investor reaction to Microsoft’s earnings fell somewhere between these two extremes. Like Alphabet, it reported revenue numbers that exceeded consensus analyst forecasts, but not by much, and it also said capital expenditures would climb more than analysts had anticipated. So it saw its shares slide about in line with investors’ disappointment in the size of the gap between revenue acceleration and capital expense growth, even though Microsoft’s cloud computing sales were up an impressive 40% from last year, a figure it largely attributed to AI spending.
What was striking at Fortune Global Forum, however, was how little global executives seemed to care about these financial market dynamics. If there was any consensus from the discussions in Riyadh, it was that the current moment is a lot like the early days of the internet or the roll out of cloud computing in the mid-2000s and early-2010s. In other words, a real technological transformation is underway. Yes, it might involve some companies becoming overvalued—as did happen with the internet boom. But almost all agreed that AI is going to have a transformative and lasting impact on their companies, and on the world economy, even if there is a market correction.
Executives are finding value in AI
At an IBM-sponsored dinner at FGF that Fortune hosted, Ana Paula Assis, IBM’s senior vice president and chair for EMEA and growth markets, said that, in her experience, it wasn’t the fear of an AI bubble—the concern that AI might just be a flash in the pan that doesn’t live up to the hype—that held companies back from investing in the technology. Instead, it was the speed of AI innovation that was actually the problem. Some companies, she said, seemed worried they would build systems around one set of models and capabilities, only to have those eclipsed in just a few months or a year, requiring them to change those workflows and swap models again. She described some potential customers as “like deer in the headlights” dazzled and frozen in place by the pace of change.
On stage at the conference, Ruth Porat, the president and chief investment officer at Alphabet, echoed Assis’s view to some degree. She noted that there was a big disparity between the speed of AI advances and the speed at which companies were adopting the technology. She said this disparity was largely the result of how difficult it is for large enterprises to change internal processes in general. And to get the most out of AI requires companies to rethink every process, she said, so it is perhaps not surprising that this is happening much more slowly than the rate at which AI companies, including Google, are rolling out new AI models and capabilities.
IBM put out some survey results this week for EMEA enterprises that show companies are indeed moving ahead with deploying AI at scale. Its survey of 3,500 senior executives in 10 countries found that two-thirds reported “significant productivity gains” from deploying AI. In some sectors, such as finance, the figure was 72%. Adoption in Saudi Arabia was even higher still—84%. What’s more, across EMEA, 92% of those surveyed were confident that AI agents would deliver ROI within the next two years. (Which may prove the point about the tech capabilities running far ahead of adoption. You might remember how many top tech execs declared 2025 to be “the year of AI agents.” I guess the real year of AI agents might be 2027!)
Ok, with that, here’s more AI news.
Jeremy Kahn
jeremy.kahn@fortune.com
@jeremyakahn
