Tech giants have made it clear that they will spare no expense in their efforts to prevail in the AI race. So much so, that tech giants likeMeta (META),Microsoft (MSFT),Amazon (AMZN), andGoogle (GOOGL)Planned to spend up to $320 billion on AI technology in 2025.
So when Microsoft CEO Satya Nadella, who predicted the great LLM-ification of AI and became a major investor in ChatGPT creator OpenAI in 2019, warned about the "overbuild" of data centers after being part of the group signaling their spending ambitions, some analysts and industry experts seemed to take notice.
Even more so when Alibaba co-founder Joe Tsai echoed Nadella's concerns, calling the buildout in AI data centers abubble.Microsoft, meanwhile, went on to deny additional capacity from hyperscalerCoreWeave (CRWV), which was in the process of IPOing (that role was bought by OpenAI instead.)
Only, nobody really cared.
On Wall Street, valuations in AI-powered trades were taking off. The only real setback was April's tariff dispute. Then, it was back to all-time highs for U.S. equities.
The attitude was: "don't fight the tape." In some techno-optimist circles, the arrival of superintelligent AI was seen just around the corner. Their attitude: "Why sell now?"
Investors might be more wary now, thanks to a recent MIT study warning that businesses are not seeing returns from AI investments. And making matters worse, more industry experts are warning that investors got ahead of themselves.
MIT cuts back on AI spending bombshell
MIT researchers studied 300 businesses and how they were using AI and found that, despite claims that the businesses had invested $30 to $40 billion into generative AI, only 5% of companies had seen any return thus far.
Where industry anecdotes fell on deaf ears, the MIT study cut through the noise. Immediately after the report was released, tech stocks plummeted. And piling on, even more industry leaders are joining the chorus, explicitly calling out what they see as an AI bubble.
OpenAI CEO Sam Altman warns of bubble
Among them are OpenAI CEO Sam Altman, who plainly stated, "investors as a whole are overexcited about AI." While emphasizing its long-term importance, Altman warned that investors could get "burnt" by the 'dot com-like' dynamics in the market.
Unfortunately, it won't just be the people betting on high-flying names likePalantir (PLTR)Many Americans' 401(k)s, IRAs, and brokerage accounts are tied up in indexes that are heavily exposed to the AI trade. In fact, these tech giants represent over a third of the S&P 500's weight.
Altman remains an optimist in the long run, castingissues with his firm's latest frontier AI modelas a "misfire" and promising an even more fantastic sequel in GPT-6. But that's what many AI optimists were hoping for with GPT-5. And waiting even longer for "the future" to arrive might mean exhausting their optimism.
That's not to say that AI models (including those of competitors) are not progressing, but investors' willingness to allow companies to become capital-intensive businesses might not last much longer if they do not see light at the end of the tunnel.
While they've learned to love the stratospheric growth coming from AI chipmakerNvidia (NVDA)and the double-digit growth in cloud services from Microsoft, Amazon, and Google, caution about returns might lead to a pullback.
Mark's spend-a-thon comes to a close
There's some evidence that it's already come — or maybe, somehow, AI is already replacing jobs — atMeta. CEO Mark Zuckerberg spent heavily to acquire AI talent and build data centers. He is now almost out of cash and looking to private credit to support his ambitions.
Still, if you're confident there's a payoff, why pull back? According to the WSJ, Meta is in the process of reorganizing its AI segment into different businesses prioritizing business endpoints. With it, executive departures, layoffs, and aHiring freeze.
Is this a sign that Zuckerberg and management have looked around and collectively realized that they are buying the top? Is this an unfortunate repetition of the company's failed metaverse ambitions? Or is this a wake-up call from within after wasting billions on compensation packages for researchers and data centers?
Too early to say, but after spending $31.8 billion in the last six months, you have to wonder if maybe the industry experts called it as it was. Now that Wall Street finally seems to be paying attention, what does that mean for the market?
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