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Microsoft and Meta Stand Firm on AI Investment Amid DeepSeek's Low-Cost Disruption

In the wake of Chinese startup DeepSeek's groundbreaking low-cost AI computing technology making waves in the U.S. tech industry, top executives from Microsoft and Meta have reaffirmed their commitment to substantial AI spending, emphasising its importance in maintaining competitiveness in this evolving sector.


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DeepSeek's rapid progress in developing cost-effective AI models that rival those of Western competitors at a fraction of the cost has raised questions about the U.S.'s technological edge. However, both Microsoft and Meta CEOs have stressed the necessity of building extensive computer networks to meet the increasing demands of businesses.


Meta CEO Mark Zuckerberg highlighted the strategic advantage of heavy investment in capital expenditure and infrastructure, stating, "Investing very heavily in capital expenditure and infrastructure is going to be a strategic advantage over time." Microsoft CEO Satya Nadella echoed this sentiment, noting that the increased spending would alleviate capacity constraints hindering the company's AI initiatives.


Microsoft has allocated $80 billion for AI in the current fiscal year, while Meta has committed up to $65 billion, demonstrating their significant investment in this technology. In contrast, DeepSeek reported spending only around $6 million on developing its AI model, with U.S. executives clarifying that this figure primarily covers computing power expenses rather than overall development costs.


Despite the substantial investments, concerns have been raised by some investors regarding the lack of immediate returns. Microsoft's shares dipped by 6% following a third-quarter growth forecast miss for its Azure cloud business, prompting calls for a clearer monetisation strategy from shareholders like Brian Mulberry from Zacks Investment Management.


On the other hand, Meta's performance presented a mixed picture, with a strong fourth quarter but a tepid sales outlook for the first quarter. Analysts have pointed out the need for these tech giants to balance their high expenses with revenue generation, underscoring the urgency for a more sustainable financial model in the AI sector.


Looking ahead, Microsoft's CFO Amy Hood indicated a cautious approach to capital spending, aiming to maintain levels similar to the previous quarters in the coming months. She mentioned that while investments would continue to align with growing demand, the growth rate in fiscal 2026 is expected to be more moderate compared to the current fiscal year.

 
  • Microsoft and Meta defend massive AI spending to stay competitive in the evolving tech industry.

  • DeepSeek's low-cost AI computing raises doubts about U.S. technological leadership.

  • Microsoft earmarks $80 billion, Meta pledges up to $65 billion for AI investments.


Source: REUTERS

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