In their rush to fill rural America with vast, windowless data centres, US tech companies are taking a capital intensive bet on artificial intelligence. If that does not pay off, the rise in investment could drag on profit margins for years.
Excitement around generative AI means post-pandemic cost-cutting programmes have given way to investor-sanctioned spending plans. At the start of the year, Meta announced a new $800mn data centre in Indiana. Alphabet is planning a $3bn project to set up a data centre campus in Indiana and expand capacity in Virginia. Microsoft plans to create a $3.3bn “hub for AI” in Wisconsin. International projects include Amazon’s multibillion-dollar plans in Germany and Singapore. Data centres, like custom chips, are intended to act as a moat around cloud computing and AI services.
The result is an increase in capital expenditure, much of it directed towards plant, property and equipment. Between the end of 2019 and 2023 fiscal years, gross PPE at Meta and Microsoft more than doubled. It almost doubled at Amazon and Alphabet.