Is Big Tech's AI Gamble Starting to Look Riskier?

Is Big Tech's AI Gamble Starting to Look Riskier? (msn.com) 37 The Washington Post looks at giant tech companies "feeding every available dollar into the cash-incinerating maw of AI machines." They warn "Tech superstars that once had oodles of cash left over at the end of each year are now flipping into the red..." [While optimists expect] huge corporate profits and a society-wide boost to wealth and well-being... questions about that AI vision are now growing more urgent: When, if ever, will this payoff arrive? And what will the fallout be for Americans if the titanic investment doesn't quickly deliver? "This AI thing better work out because if it doesn't ... we're going to have a problem," said Torsten Slok, chief economist at investment firm Apollo Global Management. AI costs and doubts are spreading. The U.S. stock market has swooned this summer over fear of the AI bubble going bust... The AI gamble sweeping up American fortunes is led by tech companies splurging on hulking data centers packed with computer chips and equipment needed to develop sophisticated AI models and deliver them to customers. In investor calls in the past week, Google, Microsoft, Meta and Amazon pointed to soaring AI-related sales and business deals. Advertisers are using the technology to tailor marketing pitches and corporations and start-ups are buying access to chatbots and other AI software to boost productivity... But this spending can only continue if AI generates an even larger avalanche of new revenue to pay for it all. Financial results released over the past week show that the AI titans' mammoth costs are largely swamping the sales boost from the technology. At Google, for every dollar of cash its business generated in the past three months, $1.15 went out the door to pay for AI computer chips and equipment, land for AI data centers and other big-ticket purchases. The company is covering the difference partly by borrowing money and selling more of its stock. Next year, five leading AI companies — Google, Amazon, Microsoft, Meta and Oracle — are projected to have negative free cash flow, which measures the cash left over after paying expenses and AI infrastructure costs. The figures, based on investment analyst projections compiled by S&P Global Market Intelligence, show a stunning reversal for what have been some of the world's most cash-generating corporations... The companies remain profitable by standard financial accounting measures that spread out the costs of their AI infrastructure spending over many years... Pessimists see a bet so gargantuan that it cannot possibly pay off. The pessimists are growing louder. The Bank for International Settlements, a typically measured institution in Switzerland that advises government bankers around the world, recently warned there was risk of "economy-wide recessions" if the AI boom falters. That could mean pain for workers and communities across the United States. "I'm not saying AI is going to go away, it's just not clear to me these guys are going to make money on it," said Christopher Wood, global head of equity strategy at investment bank Jefferies who has correctly predictedpast financial bubbles. The AI gamble sweeping up American fortunes is led by tech companies splurging on hulking data centers packed with computer chips and equipment needed to develop sophisticated AI models and deliver them to customers. In investor calls in the past week, Google, Microsoft, Meta and Amazon pointed to soaring AI-related sales and business deals. Advertisers are using the technology to tailor marketing pitches and corporations and start-ups are buying access to chatbots and other AI software to boost productivity... But this spending can only continue if AI generates an even larger avalanche of new revenue to pay for it all. Financial results released over the past week show that the AI titans' mammoth costs are largely swamping the sales boost from the technology. At Google, for every dollar of cash its business generated in the past three months, $1.15 went out the door to pay for AI computer chips and equipment, land for AI data centers and other big-ticket purchases. The company is covering the difference partly by borrowing money and selling more of its stock. Next year, five leading AI companies — Google, Amazon, Microsoft, Meta and Oracle — are projected to have negative free cash flow, which measures the cash left over after paying expenses and AI infrastructure costs. The figures, based on investment analyst projections compiled by S&P Global Market Intelligence, show a stunning reversal for what have been some of the world's most cash-generating corporations... The companies remain profitable by standard financial accounting measures that spread out the costs of their AI infrastructure spending over many years... Pessimists see a bet so gargantuan that it cannot possibly pay off. The pessimists are growing louder. The Bank for International Settlements, a typically measured institution in Switzerland that advises government bankers around the world, recently warned there was risk of "economy-wide recessions" if the AI boom falters. That could mean pain for workers and communities across the United States. "I'm not saying AI is going to go away, it's just not clear to me these guys are going to make money on it," said Christopher Wood, global head of equity strategy at investment bank Jefferies who has correctly predictedpast financial bubbles. There is no risk to them. *Too Big to Fail* (Score:3, Insightful) Bailouts are being prepared. All your data center are belong to us (Score:2) Bailouts are being prepared. Nah. They will have to turn over those big data centers to the gov. Too few jobs involved, unlike in the auto bailout, for any bipartisan support. The Pentagon will be thrilled. Re:All your data center are belong to us (Score:5, Insightful) You pay a power bill? The utility that built billions worth of generation and transmission infrastructure on the promise of a future income stream gotta get paid. The bonds have to be covered or the banking system will seize up like in 2008. In the final analysis, it's the people left still paying a power bill who will get stuck. Re: (Score:2) You pay a power bill? The utility that built billions worth of generation and transmission infrastructure on the promise of a future income stream gotta get paid. The bonds have to be covered or the banking system will seize up like in 2008. In the final analysis, it's the people left still paying a power bill who will get stuck. When the data centers get turned over to the gov’t (to the Pentagon) they are still operating, just likely running different models for gov’t work. They need electricity too. When did it not look risky? (Score:5, Insightful) Re: (Score:2) I do not think it looks risky. I think by now failure is basically assured. No risk in that. Buffett: "Only when the tide goes out..." (Score:3, Informative) "...do you discover who's been swimming naked." AI mostly comes to us from California, the original land of "Fake it till you make it". AI fakes intelligent results, without "knowing" anything, with what Gary Marcus calls "a world model". A world model means you "know", that you "understand", that you "comprehend" that: -- the cited-cases part of a legal filing should be only drawn from the list of existing cases that the thing was given -- that laws mentioned should exist in documents called "Title Code" that the thing was given -- that there are laws, these are supreme "orders" above others given -- that one of them is "killing human beings is against supreme orders that supercede all other instructions" (sorry, not on topic: it's just HAL didn't "know" the 3 laws) -- that human hands have just the five fingers. They just fake it, producing documents that look like good ones. They can't make it. Not in them. No world model. And the tide is going out. Re: (Score:3) It is actually worse. LLMs do sort-of have a world-model, but they cannot really use it. What they lack is deductive capabilities with the power needed to do plausibility checking against that world model. And there is no way to create that because statistical "deduction" will always be very shallow and very unreliable. As a simpler description, LLMs have all the data, but they have no insight that would allow them to use that data competently. They can only make statistical guesses and that is not enough ou As long as ... (Score:3) The companies remain profitable by standard financial accounting measures that spread out the costs of their AI infrastructure spending over many years... It would be wise to research the ownership structures of these outfits for just such mismatches before committing any money to them. Re: (Score:2) Re: As long as ... (Score:2) Thankfully, no. Due to a recent layoff, my 401k escaped my companyâ(TM)s control. I put it in an investment firm with strict instructions to avoid any Musk owned company, and any AI only company; OpenAI, Anthropocene, HuggingFace, etc. I have $0.00 in SPX, and will have the same in AI IPOs. They are asking the wrong question.... (Score:4, Interesting) Re: (Score:1) There are only two kinds of people who believe otherwise: people with zero knowledge of what LLMs really are, or CEOs of AI companies You're forgetting the third group; slashdot "graybeards" well past their cognitive zenith giddy that they once again feel productive in their job in spite of their hardening brain and the fact they haven't really felt alive in many years. Re: (Score:1) I'm a cognitive zenith graybeard who felt alive JUST THIS MORNING, you insensitive clod! Re: (Score:1) Re: (Score:2) Re: They are asking the wrong question.... (Score:2) viagra doesnâ(TM)t count as alive any more than llm chatbot. Re: (Score:1) I'm a cognitive zenith graybeard who felt alive JUST THIS MORNING, you insensitive clod! Then what happened? Re: (Score:2) The question is not "IF" the AI bubble is going to burst, but "WHEN". It's impossible to keep up these spending levels in the long term, and I am yet to see AI profits outpacing the spending. There are only two kinds of people who believe otherwise: people with zero knowledge of what LLMs really are, or CEOs of AI companies It is plausible we're in a bubble. And there's some evidence for it. That companies can just add the words "AI" to something to get investment is a serious sign. But the revenue situation, while weird, is not by itself definitive. Anthropic even made a profit in Q2 this year https://aitoolsrecap.com/Blog/anthropic-first-profit-2026-revenue-breakdown [aitoolsrecap.com] . Now, there's enough weird accounting going on, and circularity within the various companies, that interpreting that as a definite, genuine profit is somethin Re: (Score:2) And there are more threats. The EU CRA and also the DSA place requirements on software that are simply outside of what LLMs (or semi-competent coders) can do. Software is about to get a whole lot harder. Re: (Score:2) It's impossible to keep up these spending levels in the long term, and I am yet to see AI profits outpacing the spending. The expensive part is the training, once the NNs are trained, they are significantly cheaper to run (and there are a lot of optimizations you can do to make them a LOT more efficient). Re: (Score:2) This is only relatively true. Nothing will make a general purpose statistical neural network more efficient at arithmetic than just doing it directly on the CPU. obvious bubble (Score:4, Interesting) There's an obvious bubble, the circular dealings among the large core players are an enormous red flag. The frontier labs are in the same position that DEC and Sun Microsystems were in the 1990s, as consumer hardware running Linux began to displace them. There will be ups and downs, but the trend is unavoidable. The productivity gains are not there, AI is great for coding, some customer service is working, but the "50% of all white collar workers" that the frontier labs thought was good positioning last year 1) ain't gonna work but it did 2) infuriate the managerial class. The frontier labs got away with it, thus far, in part because of concerns over the arrival of artificial general intelligence, which occupies a similar niche to nuclear weapons in the minds of policy makers. We ARE seeing frontier models escaping and attacking others, there ARE hazards, but it's nothing like what was imagined. And the open models plus wild talent are as much a danger as wild talent was all on its own. The frontier labs are like the coyote in that last moment when he's windmilling wildly, but not falling yet. Re: (Score:2, Interesting) Sorry, but AI is not great for coding. Sure, if you were coding on slop-level before, you can do it faster and with even less understanding using an LLM to assist you. But liability and other requirements are finally coming to software. The EU CRA and DSA creates requirements that LLMs (or human-creates slop) cannot fulfill. And they both come with real teeth. Re: (Score:1) You think pointing out facts costs me credibility? Well, maybe with the stupid. You seem to be a prime example. Oh, and look. I am posting at +2. That must kill you inside. Re: obvious bubble (Score:2) Because? When, if ever, will this payoff arrive? (Score:2, Insightful) In the future It's an R&D project, and anyone who expects quick profit is living in a fantasy world Re: (Score:3) Indeed. It is an R&D project scaled-up to absolute insane dimensions. That cannot work. No, they look like an assured fail (Score:2, Insightful) No risk in that. I mean more and more enterprises see no revenue growth from using AI, AI code is problematic in several regards including copyright, prompt-injection is unsolved and may be unsolvable, and now it turns out that running these things may make you hack everybody around you. There really is nothing this tech has going for it except somewhat better search. The rest is either massively risky or does not deliver. Riskier? (Score:2) Starting? (Score:3) Starting? Starting? The giant silver lining to the destruction of capital this has brought is that if likely to be the end of Oracle. And maybe collapsing the tech economy is worth that one gem. Re: (Score:1) AI companies mistake! Their marketing! (Score:2) Because they believed the company with the biggest pile of cash and compute would win the race to AGI. So far! they have lost that bet, at this point all they have is a huge pile of debt. I'm a believer (Score:2)