The financing of the domestic large-scale model Five Tigers is only the pocket money of the giants?

Author | Chu Xingjuan, nuclear cola

"Pigs have been advancing by leaps and bounds" for so long, and the three major manufacturers have handed in the "quarterly examination answer sheet".

In the past two days, Meta, Google, and Microsoft have released their latest financial reports. All three major players have indicated that capital spending will increase this year: Meta will rise to $35 billion to $40 billion for the full year, Google will spend about $12 billion or more per quarter, and Microsoft will spend $14 billion in the most recent quarter, which is expected to increase "significantly".

However, investors' attitudes towards the three are very different: "Meta fell more than 10%" is on the hot search, while the shares of Google's parent company Alphabet and Microsoft have risen in after-hours trading. What's going on?

Xiaozha: The opening remarks are all about losing money

Not surprisingly, Zuckerberg talked about artificial intelligence on the Meta earnings call. He spends a lot of time talking about Llama 3 and the recently launched AI assistant Meta AI. However, he then turned to the metaverse and began selling the company's headphones, glasses, and operating systems. His opening remarks were almost entirely focused on the many ways Meta lost money.

Meta derives 98% of its revenue from digital advertising, but Zuckerberg talks about the topic as he looks to the future and how the company can turn current investments into ad revenue. Discussing Meta's efforts to build "leading-edge AI," he said, "There are multiple ways to build a huge business here, including scaling business messaging, bringing in ads or paid content in AI interactions." ”

That's not what investors want to hear. On Wednesday local time, Meta shares plunged 19% in after-hours trading, wiping out more than $200 billion in market value.

Zuckerberg also seems to be ready. "Our stock has seen a lot of volatility in the product strategy phase, and we are investing in expanding a new product, but it hasn't been monetized yet. ”

At first glance, Meta's first quarter 2024 performance was impressive: revenue grew 27% year-over-year to $36.5 billion, operating profit nearly doubled to $13.8 billion, and profit margins jumped to 38% from 25% last year. Meta also has some statistics that keep analysts optimistic: as of March 31, 2024, the company's headcount has decreased by 10% to 69,329.

However, Meta expects VR division Reality Lab to not only report a $3.8 billion operating loss in the first quarter, but also to continue to lose money. Meta's capital spending will also grow from $30 billion to $37 billion to $35 billion to $40 billion over the course of 2024.

"We will continue to accelerate infrastructure investments to support our AI roadmap," Zuckerberg said. Meta did not release a forecast beyond 2024, but mentioned that "capital spending will continue to increase next year as we aggressively invest to support the company's ambitious AI research and product development efforts." ”

The second blow to investors came from analyst conference calls. Zuckerberg predicted at the conference that it would take a multi-year investment cycle for Meta's AI business to develop into the "profitable service" he wanted.

Meta CEO Susan Li added that companies need to develop advanced models and scale products before they can bring in meaningful revenue. "While the long-term potential is huge, we are still in the early stages of the return curve. Li said.

This is obviously not what analysts want to hear, but it also makes the market finally realize that it will take some time for the AI space to pay off the huge funding that was thrown at the beginning. As a result, the company's share price took a heavy hit in after-hours trading. The day's close was $493.50, down more than 14%.

Other companies in the tech industry have also invested heavily in AI, and are scrambling to hype around the topic. Microsoft, for example, has poured billions of dollars into OpenAI and brought its technology to a range of its own products, in an effort to convince customers of the value.

As a result, Meta's honest approach to the current state of AI technology (which is well underway, but more money and time is needed to make substantial progress on the profitability level) is likely to be a wake-up call for Wall Street and beyond.

There may be a lesson from the fact that the metaverse bet has not paid off as expected, and the drop may also be a clear signal that investors don't want to wait too long for Meta to deliver on the promise of AI technology.

Google, Microsoft grinned: it's up, it's up

The contrast is stark, with Alphabet and Microsoft shares rising in after-hours trading a few days ago, and the investment market is clearly pleased with the higher-than-expected quarterly earnings of the two AI-powered companies: Microsoft is up 4.3% to $416.25 per share at the close, while Google's parent company is up 11.4% at $176 per share.

Google: First dividend, costs rose because of confidence

Alphabet reported first-quarter 2024 revenue of $80.5 billion, up 15% year-over-year. Net income was $23.7 billion, an increase of 53%, and earnings per share were $1.89 per share. Alphabet shares rose nearly 15% at one point after the announcement.

The enthusiasm for Alphabet stock is due in part to its first quarterly dividend of $0.20. The dividend will be paid on Class A, Class B and Class C shares from June 17, 2024. The search giant also unveiled a $70 billion share buyback program. Microsoft also returned $8.4 billion to shareholders in the form of buybacks and dividends during the quarter. This behavior was also ridiculed by netizens as "stealing Meta", and Meta tasted a sharp rise in stock price after launching a buyback dividend last quarter.

Google Cloud revenue reached $9.6 billion, up 28% year-over-year. Ruth Porat, the company's CFO, said it was driven by "an ongoing drive from AI contributions."

However, the development of AI technology has also increased operational costs, mainly in terms of related technical talent and computing infrastructure. Alphabet is struggling to manage these costs.

"Going forward, we will continue to focus on cutting cost growth to create room for higher and higher levels of investment in technology infrastructure and the corresponding depreciation and operational investments." ”

She also reported that "in terms of capital expenditure, we reported first-quarter capital expenditures of $12 billion, again driven primarily by investments in technology infrastructure, with the largest portion being servers, followed by data centers." The significant year-over-year growth in capital expenditures in recent quarters reflects our strong confidence in the ability of AI technology to create more opportunities for the overall business. ”

However, from Google to Alphabet, organizations are making organizational changes around AI, making it increasingly difficult for Google to actually invest in AI. "The AI model development team of Google's services division, which was previously part of Google Research, has now been integrated into Google's DeepMind and reports directly to Alphabet Group executives, with an expected start date of the second quarter of 2024," the company said in its earnings report. ”

Microsoft: AI opportunities depend on how many people are willing to pay

Meanwhile, Microsoft reported revenue of $61.9 billion for the third quarter of fiscal 2024, up 17% year-over-year. Net income was $21.9 billion, up 20% year-over-year, and earnings per share on an average basis were $2.94. The performance of Microsoft's business units is as follows:

• Productivity & Business Processes: Revenue of $19.6 billion, up 12%.
• Intelligent Cloud: $26.7 billion, up 21%.
• Other Personal Computing: $15.6 billion, down 17%.

In the overall strong quarter, the only significant lapse came from equipment sales in the other Personal Computing Group, where revenue fell 17%. Thanks to Microsoft's acquisition of Activision Blizzard, Xbox content and services revenue jumped 62%.

Amy Hood, executive vice president and CFO of Microsoft Corp., told investors that capital expenditures are expected to continue to increase to further support cloud and infrastructure and model training.

During Microsoft's earnings call, Morgan Stanley's Keith Weiss asked for more details about Microsoft's AI investment, noting that the software giant's capital spending could increase by more than 50% year-over-year to $50 billion. There is also news that the total amount of money spent on AI supercomputers will be as high as $100 billion.

Weiss then asked sharply: "Obviously, such an investment is much higher than the return on income. We hope you can tell us more about how you, as a manager, can quantify the potential opportunities behind these investments, which are a significant amount of capital. ”

Microsoft CEO Satya Nadella responded that when it comes to training, Microsoft wants to "properly allocate the necessary funds to train these foundational large models and stay ahead of the curve." ”

Microsoft CFO Hood added that it's important to look beyond the short-term to see the implications of these large-scale spending, especially with a focus on the potential for AI to impact business processes. "This opportunity is reflected in the value enhancement. In other words, the opportunity will depend on how many people are willing to pay for AI-enhanced services.

Conclusion

Whatever the outlook, Meta, Google, and Microsoft are burning staggeringly. On the other hand, in China, Zhipu AI, Baichuan Intelligence, Dark Side of the Moon, Zero One Thousand Things and Minimax are known as the "Big Model Five Tigers" in China, and have always been favored by investors. Through their financing, we can get a glimpse of the cash burning situation of domestic startups.

• Zhipu AI received a total of more than 2.5 billion yuan in financing last year, and has also received multiple rounds of investment of hundreds of millions of yuan before;
• Baichuan Intelligent completed an angel round of financing of $50 million in April last year and a Series A financing of $300 million in October.
• On the dark side of the month, it entered the game with $50 million at the beginning of last year, completed an angel round of financing of nearly $300 million in June last year, and completed a new round of financing of more than $1 billion in February this year;
• Facing Wall Intelligence recently announced that it has completed a new round of financing of hundreds of millions of yuan, which has previously completed hundreds of millions of yuan;
• MiniMax, which was revealed in March this year, will be valued at more than $2.5 billion in a new round of financing, and it has also completed multiple rounds of financing, but the exact amount is unknown.

Although it is impossible to come up with a specific amount, compared with Meta, Google and Microsoft, which cost $10 billion a quarter, the financial strength of domestic large-scale model start-ups still cannot catch up, and the PK financial strength between domestic and foreign large manufacturers is more appropriate. But the problem that all companies face in the future is similar: how to get the benefits after spending so much money.

Original link: The financing of the domestic large model of the Five Tigers is only the pocket money of the giants?Google, Microsoft, Meta: Don't play with AI_AI & big model if you can't get $10 billion every quarter_Chu Xingjuan_InfoQ Selected articles