Big Tech keeps throwing money at AI

Big Tech companies are still spending like crazy on AI. Bloomberg News reporter Dina Bass explains why it's so hard to tell if any of it is paying off yet. Plus: VCs can't stop podcasting, and Mexico gets a tariff extension. If this email was forwarded to you, click here to sign up.

Meta Platforms Inc. and Microsoft Corp. offered the clearest look at the current economics of artificial intelligence when they reported quarterly financial results late on June 30. And the view was … not very clear.

One thing is for sure: AI companies are spending extravagantly. Microsoft pledged to spend more than $30 billion in the current three-month period on capital investments, which is for the most part another way of saying "data centers for AI." This is even after Microsoft began retreating from some lease commitments early this year for buildings around the world crammed with servers and Nvidia Corp. chips. If its current pace of expenditures continues, it will actually represent a slowdown to 36% growth, from a rate of 58% in the fiscal year that just ended.

Before this week, Meta had signaled it was a big spender too. Mark Zuckerberg has been handing out eye-watering pay packages to AI engineers and researchers, in some cases worth more than $100 million apiece. Meta indicated in its earnings report that compensation will continue to be a big-ticket expense, and more surprising, Chief Financial Officer Susan Li said it will "ramp up our investment significantly" in infrastructure next year.

Meta's headquarters in Menlo Park, Californiaary 29. Photographer: David Paul Morris/Bloomberg

Expect something similar from Amazon.com Inc. when it reports results Thursday afternoon. In the first quarter, Amazon's capital expenditures exceeded $24 billion on what it said was largely tech infrastructure (again, mostly AI).

Whether all this is paying off in revenue or profit is anybody's guess. Some of these companies, including Amazon and Meta, are still early in figuring out how to make money from AI. Amazon has said it will make Alexa+, its more capable assistant, an added benefit for Amazon Prime subscribers and charge separately for those who just want the AI, but the company has yet to widely roll out the service. Meta executives this week repeatedly brought up how AI is improving its advertising business, but the newer and costlier Superintelligence group represents a different business opportunity around chatbots and large language models that hasn't yet materialized.

Even Microsoft, whose business model for AI is further baked, reports its AI revenue and profit in a way that can't be easily compared with previous periods. When it does provide financial disclosures on AI, they're sporadic and perhaps only shared when the data is favorable. This week, Microsoft said 100 million people use its Copilot assistants every month but didn't provide a breakdown of which of those users pay for the service. The one AI data point offered consistently for the last several quarters—the portion of Microsoft's Azure cloud growth attributable to AI—has disappeared, because the company says it's now less relevant.

In previous reports, Amazon's numbers have also been tough to parse. It's said its AI revenue run rate, meaning sales on an annualized basis, is in the "multiple billions of dollars," but so far it's declined to be more specific.

For now, stockholders are betting returns will come, driving shares of Meta and Microsoft higher on Thursday. Microsoft joined Nvidia as the only other member of the $4 trillion club.

Offering an AI developer compensation on par with a basketball star or dropping more than $100 billion in a single year on data centers will someday be viewed as prescient or symptomatic of AI mania. Based on the numbers we know now, though, it's impossible to say which.

In Brief

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The Fed's preferred measure of underlying inflation increased in June at one of the fastest paces this year, while consumer spending barely rose.
A trial of Eli Lilly's blockbuster diabetes drug Mounjaro fell short of expectations that it would do a better job of preventing heart attacks and strokes than its older medicine, Trulicity.

VC Podcasts Are Setting the Tech Narrative

TBPN hosts Jordi Hays and John Coogan. Source: YouTube

When Bucky Moore, a former partner at Kleiner Perkins, left his job for a gig at Lightspeed Venture Partners, he did a media tour. He broke the news on 20VC, then had a 45-minute conversation on the podcast Sourcery and wrapped up with the show TBPN, in an appearance that included an extended aside on a major issue with the weights in hotel gyms (not heavy enough). "This is a big problem, and I'm glad you guys are talking about it," Moore told TBPN's hosts. Each podcast is hosted by a current or former venture capitalist. None is affiliated with anything resembling a traditional news publisher.

Moore was tapping into a burgeoning media ecosystem serving the tech world, consisting of a startlingly wide array of podcasts, newsletters and streaming shows. There's even a print magazine or two. These days it may be easier to count the number of VC firms that have not started a media outlet than to tally the ones that have. Some of these offerings are boring and sycophantic; others are genuinely illuminating. Together, they're changing the way people learn about the technology industry.

"It's kind of crazy that people want to hear about tech for three to four hours a day, every day," says Logan Bartlett, an investor at Redpoint Ventures whose weekly podcast has 47,000 subscribers on YouTube. "We're going to end up 24 hours a day at some point here."

This new media landscape is changing the way that insiders—and everyone else—learns about the world of startups, finds Anne VanderMey. Read more: How Podcast-Obsessed Tech Investors Made a New Media Industry

Mexico, at Least, Will Get a Tariff Extension

Trucks enter the US from Mexico at the Nogales-Mariposa port of entry on July 30. Photographer: Rebecca Noble/Bloomberg

President Donald Trump extended Mexico's current tariff rates for 90 days to allow more time for trade negotiations, again relenting after threatening to raise levies on a major trading partner.

Earlier this month, the US president had signaled plans to hike tariffs on Mexico's exports to 30% from 25% starting on Aug. 1, saying President Claudia Sheinbaum's government hadn't done enough to help secure their shared border. Many goods certified under a free-trade pact between the countries and Canada have remained exempt.

"The complexities of a Deal with Mexico are somewhat different than other Nations because of both the problems, and assets, of the Border," Trump said Thursday in a social media post, following a call with Sheinbaum. The goal now is "signing a Trade Deal somewhere within the 90 Day period of time, or longer," he said.

Josh Wingrove and Maya Averbuch of Bloomberg News break down the latest in Trump's tariff tango with America's No. 1 trade partner. Read more: Trump Gives Mexico 90-Day Reprieve From Higher Tariffs

Expensive Flop

$900 million

That's about how much Elon Musk's Boring Co. has raised in funding from the likes of Sequoia Capital and Peter Thiel's Founders Fund. But since Musk said he'd build a hyperloop almost a decade ago, his drilling company has mostly built tunnels for Teslas and his own employees.

AI's First Big Bust

"There's obviously a lot of really exciting stuff happening, and companies are doing phenomenally well. When that happens, there's a lot of competition to invest. And when there's a lot of competition to invest, people move quickly, and when they move quickly, they don't do their diligence."

Sheel Mohnot

Co-founder and partner at venture capital firm Better Tomorrow Ventures

Sachin Dev Duggal helped Builder.ai reach a $1.5 billion valuation. Then its board ousted him amid allegations of inflated revenue, and the startup filed for bankruptcy.