This year, we’ve seen technology companies implement a huge ramp-up in spending on artificial intelligence (AI). However, we have yet to see a product that generates significant revenue and returns from all this investment.
Other than this one…
For example, cloud computing companies have been buying graphics processing units (GPUs), the hardware needed to train AI models, in huge quantities. This is why Nvidia (NVDA) saw its year-over-year revenue double in its most recent quarter. But so far, it seems to be the only company where there has been meaningful revenue uplift from AI.
For everyone else, AI seems to just be a big drag on their return on equity (ROE).
According to FactSet, between December 2021 and June 2023, Alphabet’s (GOOGL) ROE has fallen 8.7 percentage points, to 23.3%; Meta’s (META) ROE is down 13.7 percentage points, to 17.3%; and Microsoft’s (MSFT) ROE is down 10.2 percentage points, to 38.8%.
Where’s the AI Revenue?
Per Investors’ Chronicle: “Microsoft may be the company closest to receiving a meaningful revenue uplift from AI. It is charging $30…per user per month to use its AI-enabled Office 365 ‘Copilot’. This is in addition to the $36 per month customers currently pay for the regular Office 365, equivalent to an 83 per cent price increase.”
Nevertheless, even Microsoft is being very careful when it comes to the hard numbers surrounding AI. In its July earnings call, it forecast that meaningful revenue growth from AI will only start appearing in the second half of 2024. That’s why the market tapped the brakes with regard to Microsoft stock, which is down 7% over the past three months. It is pausing to see if the AI story everyone has already bought into will now actually start producing real cash flows.
AI revenues look even further away for other technology firms.
At Adobe (ADBE), the AI product on offer is just a marketing gimmick. In September, the company launched its text-to-image generative AI product Firefly, which it offers for free via a web app. Adobe’s hope is that if lots of people start using the free product, some of them will eventually upgrade to a paid-for subscription in the future.
Firefly is an expensive gimmick for Adobe. AI models are expensive to build and expensive to run. Every time someone uses Adobe Firefly to generate an image, there are computing costs, and so far Firefly has created more than…
Continue reading at INVESTORSALLEY.com
