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Microsoft CEO Satya Nadella, right, speaks as OpenAI CEO Sam Altman looks on during the OpenAI DevDay event in San Francisco on Nov. 6, 2023. Justin Sullivan | Getty Images
OpenAI's head-spinning investments announced in recent months have led to increased scrutiny of the hyperscalers, which are all racing to develop infrastructure for the accelerating artificial intelligence boom. Investors are about to get a lot of new information to digest. Microsoft , Alphabet , Meta and Amazon announce quarterly results this week. While they all have very different businesses – and compete in certain areas – Wall Street is going to be laser focused on one particular line item: capital expenditures. "You're just seeing this massive commitment on the part of companies to really invest," said Melissa Otto, head of Visible Alpha Research at S&P Global. "It's going to be interesting to hear what they have to say about their investment trajectory, if they see this slowing down." For almost three years, the market has been swept up in an AI frenzy, as generative AI chatbots like OpenAI's ChatGPT and Google's Gemini have shown their power to potentially reshape vast swaths of the economy. The biggest chokepoint today is a lack of sufficient compute capacity, and not nearly enough power. AI companies are disclosing plans to build out massive supercomputing data centers, typically based around Nvidia AI chips, to handle the expected load. OpenAI, a privately held company valued at $500 billion, has set itself apart, announcing roughly $1 trillion worth of future infrastructure developments with partners including Nvidia, Oracle and Broadcom .
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Aside from OpenAI, the biggest builders include the four internet hyperscalers that are set to post earnings this week. In each case, investors want to see aggressive plans and a clear strategy. But unlike OpenAI, they can't go too big out of concern that public investors will hammer their stocks. Morgan Stanley analysts said in a note last week that they expect total hyperscaler capital expenditures to grow 24% next year to nearly $550 billion. The companies also have to show revenue growth, especially Amazon, Microsoft and Google, which are competing for AI business in their cloud units. "There are trillions of dollars that are being earmarked to be spent relative to hundreds of billions of dollars of free cash flow generated by the Mag 7," Impactive Capital co-founder Lauren Taylor Wolfe told CNBC's "Squawk on the Street" last week, suggesting that companies have yet to see significant returns on investment. Analysts will be also be looking to see how Microsoft's Copilot AI features are driving growth in its other businesses. And whether Google's AI investments are helping it defend its core search and ads business as more consumers turn to ChatGPT for information. Meta has said that its generative AI technology has bolstered the company's ability to target ads. The other megacap company reporting this week is Apple . The iPhone maker has thus far been in a separate category in AI because it doesn't operate a public cloud service or build major large language models that it shares with the public. However, Apple CEO Tim Cook said in June that the company would be increasing its capital expenditures for AI, so it's likely to be a bigger topic in Thursday's earnings report. Here's what the hyperscalers have said so far, and what Wall Street is expecting:
Microsoft
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