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This week’s AI leadersNvidiaThe stock market staged a roller coaster ride, with a 7% drop on Tuesday, but it soared nearly 13% overnight, with the market value increasing by a staggering $330 billion in a single day. U.S. technology stocks also followed suit.

Currently, Nvidia's volatility has even exceeded that of Bitcoin. Data shows that Nvidia's 30-day option implied volatility has recently soared from 48% to 71%, while Bitcoin's DVOL index (an indicator measuring 30-day implied volatility) has fallen from 68% to 49%.

Behind the extreme turbulence is the shadow of cost looming over technology giants, and the market's concerns about the returns on huge AI investments are growing.

As technology giants released their financial reports one after another, their results showed that AI capital expenditures were so high, but revenues did not exceed expectations and grow at a corresponding scale. The market ran out of patience and technology stocks suffered a round of heavy blows.

The big tech companies are responding by firmly "burning money". AI investment is currently helping to boost some of their performance. More importantly, for them, AI investment is not just about pursuing incremental profits, but has become a matter of survival. The risk of underinvestment is far greater than the risk of overinvestment.

Determined to "burn money"

Faced with market concerns, technology giants unanimously stated that they will continue to "burn money".

Overnight, Meta released its second quarter financial report, with both revenue and profit exceeding expectations. Capital expenditures for the quarter were lower than expected. The upper limit of the full-year capital expenditure range did not change, but the lower limit was raised by US$2 billion.

At the same time, Meta emphasized that capital expenditures will increase significantly in 2025, with infrastructure costs being an important driving factor, which will continue to support AI research and product development.

Coincidentally,MicrosoftMicrosoft also firmly stated that it would continue to increase AI spending. In the second quarter, Microsoft's capital expenditure increased by 77.6% year-on-year to US$19 billion, almost all of which was used for AI-related expenditures. In fiscal year 2024, annual capital expenditure exceeded the US$50 billion mark.

Brett Iversen, Microsoft's vice president of investor relations, said the company will continue to increase spending in the future to meet "strong customer demand" and expects capital expenditures in fiscal 2025 to be higher than in fiscal 24.

AI investments are currently driving growth

Regarding the issue of AI returns, the technology giant also gave detailed explanations in the conference call, allaying some of investors' concerns.

Let's start with Microsoft, which focused on the growth that AI has brought to Azure.Microsoft said the number of customers for its Azure AI cloud services grew nearly 60% in the most recent quarter, and average customer spending also rose.

Microsoft also explained that part of the reason for the slowdown in Azure was the shortage of GPUs. Microsoft said that due to the shortage of AI GPU servers, the production capacity of its Azure AI services has been limited, and this situation will continue until the end of this year, which clearly shows the strong demand for AI among enterprise customers.

Secondly, Meta emphasized how AI helps the advertising business grow.Zuckerberg said in a financial report conference call that AI improves recommendation functions, helps people find better content, and makes the advertising experience more effective, and these products are already scaled products. Meta's advertising sales grew 22% in the second quarter, twice the growth of its rival Google.

Some analysts also mentioned that AI strategy has led Meta to rebirth from the lows of the past two years.Analysts say Meta has used AI to rebuild its advertising technology stack, change its user interface, and bring more user engagement, which is now reflected in revenue and profits. Meta has indeed addressed some of the concerns and storms of a few years ago and has done a great job integrating AI into their ecosystem.

In addition, Pichai, CEO of Google's parent company Alphabet, mentioned that the company analyzes every dollar of AI investment.And sees "huge momentum" from AI investments.

Against this backdrop, it seems reasonable for Alphabet and Microsoft to boost capital spending by 91% and 78%, respectively, in the most recent quarter and pledge to keep investing aggressively in the coming year.

Chip stocks continue to outperform

The technology giants' resolute investment in AI will inevitably further increase spending on hardware such as chips, which will benefit Nvidia and other chip companies.

U.S. technology stocks rebounded overnight, with Nvidia soaring 13%.BroadcomA surge of 12%.ASMLADR rose 8.89%,QualcommIt closed up more than 8%.

A number of financial reports released previously have shown that chip giants are accelerating their growth by riding the AI ​​wave.AMD's second quarter performance was outstanding, with data center revenue doubling, AI chips in short supply, and quarterly revenue exceeding the 1 billion mark;TSMCSecond quarter performance also blossomed across the board, with sales, net profit and gross profit margin all exceeding expectations.

TSMC CEO Wei Zhejia said the company will more than double the production capacity of advanced chip packaging technology CoWoS by the end of 2024. However, even so, TSMC may not be able to meet actual customer demand until 2025 or 2026.

AMD CEO Lisa Su raised her 2024 AI data center GPU revenue forecast from $2 billion to more than $4.5 billion. She also pointed out that although production capacity will increase in the second half of the year, the supply chain of AI GPUs will remain "tight" before 2025.

AI investment has become a matter of survival

More importantly, concerns about the return on investment in AI may overlook a key point:

This is not just about incremental revenue from specific AI capabilities, but a restructuring of the entire computing platform, comparable to the transition from mainframes to personal computers in the 1980s. In this new era of AI computing, every company must upgrade its infrastructure to remain competitive.

For businesses, investing in AI has become a matter of survival rather than simply pursuing incremental profits.If competitors are able to provide better customer service through AI chatbots or develop products more quickly and comprehensively using AI design tools, companies that do not invest in AI will face severe challenges.

Deutsche BankThe analysis also pointed out:

So far, revenue has been largely confined to the cloud business, where companies train and run AI models.

However, outside of the cloud business,The evidence of return on investment is more qualitative than quantitative, and the return on AI investment is still difficult to measure with specific numbers.

These echo the previous statements of technology giants, who would rather overinvest than underinvest, because lagging behind in competition in the technology industry means "having nothing."

Meta CEO Mark Zuckerberg pointed out in a podcast: In order to ensure that Meta maintains its leading position in the field of AI, the company has spent billions of dollars to purchase Nvidia's GPUs to develop and train advanced AI models. Because the consequence of falling behind is that you will be at a disadvantage in the most important technology in the next 10 to 15 years.

Google CEO Sundar Pichai expressed a similar view: AI is expensive, but the risk of underinvestment is greater. Google may have invested too much in AI infrastructure, mainly by purchasing Nvidia's GPUs. Even if the AI ​​boom slows down, the data centers and computer chips purchased by the company can be used for other purposes. For us, the risk of underinvestment is far greater than the risk of overinvestment.

Overall, the results of the latest round of earnings season provide support for the AI ​​boom, suggesting that the AI ​​boom has not only not abated, but may be accelerating.