A steady escalation in spending on AI data centres has tested Wall Street’s patience this year. But this week, investors seemed to set aside some of their unease to contemplate the potential return on all those promised gigawatts of new computing power.
The latest quarterly earnings from some of the biggest tech companies out on Wednesday hinted at a new, higher growth trajectory that may be starting to take hold. Profit margins of the largest cloud computing companies registered an unexpected lift. It would all seem to show that the payback from the AI infrastructure boom may be coming into view, were it not for one inconvenient fact: even with growth rates picking up, the capital spending keeps spiralling ever higher.
The financial strain of the data centre boom is starting to show. The combined free cash flow — operating cash flow minus capital expenditure — of Alphabet, Amazon, Meta and Microsoft dropped to $22bn in the latest quarter, roughly half the level of a year before.