Big tech companies reported higher adoption of AI services in the second quarter, but investors want to see returns on those investments. 

Nearly $1 trillion will be spent globally on capital expenditure over the next few years, but investors are already beginning to question the returns on these investments, according to the June 25 report “Gen AI: Too much spend, too little benefit” by Goldman Sachs.

“AI technology is exceptionally expensive, and to justify those costs, the technology must be able to solve complex problems, which it isn’t designed to do,” Jim Covello, head of global equity research at Goldman Sachs, said in the report. Replacing “low-wage jobs with tremendously costly technology” will not yield enough returns on the investment, he said.  

In the second quarter, tech giants reported the following: 

• Microsoft’s Azure AI adoption increased by 60% year over year to 60,000 customers, while total revenue increased 16% YoY to $64.7 billion; 

• Google’s generative AI solutions on the cloud are being used by more than 2 million developers, while total revenue increased by 14% YoY to $84.7 billion; 

• Amazon reported a “multi-billion-dollar revenue run rate” for generative AI solutions on its cloud platform, while Amazon Web Services revenue increased to $26.8 billion, up 19% YoY; 

• IBM’s watsonX has contributed $500 million in revenue to the company since its inception in May 2023, while IBM’s total revenue increased by 1.7% YoY to $15.7 billion. 

“Both [Facebook Chief Executive Mark] Zuckerberg and [Microsoft Chief Executive Satya] Nadella are on record as saying that they would rather over-capitalize on AI than under-capitalize,” Luke Penca, executive director at think tank Capco, told Bank Automation News. “Wall Street analysts did not react well to that news last week and are pushing a narrative that the incremental revenue won’t justify the billions being spent.” 

Intentional investments in AI 

Financial services companies need to be cautious when approaching AI as they need to find the right tools to fix problems rather than deploying AI for the sake of it, Ciaran Kennedy, chief revenue officer at custom electronic hardware provider Blackcore Technologies, told BAN. 

“If you look at financial services a few years ago, there was a huge migration toward cloud-based technologies,” Kennedy said. “And what we’re starting to see now is a lot of those firms are not necessarily seeing the overall financial benefits that they thought they would have gotten.” 

Strategic investments in AI continue from business leaders, according to July research from EY. However, to benefit from investments in AI, risks must be assessed. 

“The survey uncovered significant risks on the path to enterprise-wide AI adoption, including data infrastructure, ethical frameworks and talent acquisition,” Traci Gusher, EY Americas AI, data and automation leader, said in the report. “These are key to fully maximizing AI’s abilities and will allow organizations to differentiate themselves in the marketplace.” 

AI adoption 

While investors want to see stronger AI returns, Amazon, IBM, Google and Microsoft continue to roll out new customer solutions and features to drive adoption. 

• Microsoft, for one, aims to build AI tools to drive efficiency for front-line workers in software engineering teams, finance, sales and customer service, Nadella said during the company’s earnings call on July 23. Microsoft is using customer demands as signals on how to approach development and deployment of AI to manage costs, he said.
  During the quarter, BBVA teamed up with Microsoft to use Github Copilot to assist software developers in writing code. The tool has amassed more than 77,000 business customers and has recorded a user growth of more than 180% YoY, Nadella said. 

• AWS is looking to develop custom flexible AI tools for customers as there is “no one tool to rule the world,” Amazon Chief Executive Andy Jassy said in his Q2 earnings call on Aug. 1.
  Jassy said that as AI grows, market participants would want more than one solution, tech provider and hardware option, which has prompted Amazon to work with chip maker Nvidia to develop its entire gen AI stack.  

• Google is developing AI to deploy in targeted ads, aiding searches and creating targeted marketing campaigns, Chief Executive Sundar Pichai said during the company’s earnings call on July 23. 

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