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Wall Street frets over Big Tech’s $200bn AI spending splurge

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Wall Street frets over Big Tech’s 0bn AI spending splurge

Big Tech’s capital spending is on track to surpass $200bn this year and rise even further in 2025, as anxiety grows on Wall Street about the returns on soaring investment in artificial intelligence.

The four biggest US internet groups — Microsoft, Meta, Amazon and Google’s parent Alphabet — this week offered investors brief glimpses into the benefits they are seeing from their headlong rush into generative AI, arguing that it was boosting the performance of core services and helping to hold down operating costs.

But the stock market suffered a spasm on Thursday as investors looked past the imprecise benefits to focus instead on another big — and very measurable — jump in spending on chips and data centre infrastructure, as the AI race accelerates.

Capital expenditure at the four biggest hyperscalers grew more than 62 per cent on the year before, to about $60bn during the quarter, according to this week’s financial reports. Meta and Amazon were among those to point to further increases in spending next year.

Analysts at Citi forecast that the quartet’s total capital spending will hit $209bn this year, up 42 per cent on 2023. Citi estimates that data centres account for about 80 per cent of that total.

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“What is the real benefit?” said Jim Tierney, a growth stock investor at AllianceBernstein, voicing a common concern. “All of these companies are spending a huge amount of money,” he added, with a resulting hit to profit margins that would become “more noticeable in 2025”.

One sign that demand for generative AI was starting to lift Big Tech’s growth rates came from the accelerating growth in the cloud divisions at Microsoft and Google.

But the optimism quickly dissipated when Microsoft went on to warn that cloud growth would slip back this quarter, largely because of supply constraints. Meanwhile, cloud market leader Amazon Web Services failed to hit the most optimistic hopes for an acceleration in its own growth, even as it lifted investors’ spirits with unexpectedly strong profit margins.

Companies that peppered their earnings calls this week with anecdotal and mostly vague assurances about AI returns included Alphabet, which said the new generative AI features in its search engine were increasing engagement and boosting usage. It also said a quarter of the software it produced was now written by AI.

Despite this, the growth in Google’ search volumes declined from the preceding quarter, said Tierney, raising a question about how strong the AI effect had been.

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However, Microsoft said its revenue from AI was on the brink of hitting an annualised $10bn, reaching that milestone faster than any other business in its history. It also said that Copilot — an AI feature for which it charges a monthly fee of $30 per user — had experienced “the fastest growth of a new suite” yet seen in its M365 productivity software.

The $10bn figure was a rare disclosure of a hard revenue number and serves as an early proof-point of the real benefits that could start to flow from generative AI, said Brent Thill, an analyst at Jefferies.

But few other software companies have revealed anything about the effects of AI on their revenue, he added, leaving the stock market to fret. “It’s murky. And investors are freaking out about the costs,” Thill said.

Line chart of Share prices rebased showing Is Big Tech's AI rally running out of steam?

For its part, Meta told investors that AI had boosted returns from its advertising and improved engagement among users, while AWS said its “multibillion-dollar” AI business was growing at a rate of more than 100 per cent.

If anecdotes like this were encouraging but fuzzy, the rapidly rising spending on new data centres and equipment for AI was all too clear.

Facing a grilling from investors, executives at several companies claimed the massive increase in facilities to handle AI was closely tied to demand, and that capital efficiency would improve as the business increased in scale.

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Executives at Amazon and Microsoft drew comparisons with the early days of the cloud computing business, when building and equipping fleets of data centres also caused spending to soar.

There are strong advanced buying signals from customers that make it possible to time investment spending closely to actual demand, said Amazon’s chief executive Andy Jassy. Microsoft’s chief financial officer Amy Hood said about half of the software company’s capital spending goes on server purchases, which could be timed closely to increases in demand.

Despite the claims of investment discipline, investors were left with the reality that the higher spending will hit Big Tech’s income statements next year, even as any revenue benefits are uncertain.

Meta, for instance, warned that 2025 would see “significant acceleration in infrastructure expense growth”, as its new fleet of data centres lead to higher depreciation charges and operating costs.

Changes in depreciation policies at Microsoft, Alphabet and Amazon in recent years will lessen the pain. All three have extended the useful lives of their data centre gear for accounting purposes, reducing the amount of depreciation they need to report each year.

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Amazon said extending the useful lives of its servers by a year had lifted the profit margin in its cloud division by 2 percentage points in the latest quarter — the second time it has taken this step in two years.

But even after the moves to push depreciation charges further into the future, the pressure on margins from soaring spending on AI will be hard to avoid.

After a powerful two-year rally as earnings expectations for Big Tech have ratcheted steadily higher, this could indicate a turning point. The tech-heavy Nasdaq Composite closed 2.8 per cent lower on Thursday, with Microsoft, Meta and AI chipmaker Nvidia together shedding more than $400bn in value.

On Friday morning, shares in Meta and Alphabet were broadly flat, while Microsoft and Amazon were up, at 1 per cent and 7 per cent, respectively. Nvidia rose 3 per cent.

“Investors are left asking if the ‘beat and raise’ era [in quarterly earnings announcements] is over,” said Tierney. If so, the convulsion that passed through the market on Thursday could be a sign of rockier times ahead.

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USDA report finds Boar's Head listeria outbreak was due to poor sanitation practices

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USDA report finds Boar's Head listeria outbreak was due to poor sanitation practices

Boar’s Head meats are displayed at a Safeway store on July 31, 2024 in San Rafael, Calif. The USDA released a new report on what led to the listeria outbreak.

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A U.S. Department of Agriculture report has found that “inadequate sanitation practices” at a Boar’s Head facility in Virginia contributed to a listeria outbreak that left 10 people dead and dozens hospitalized around the country last year.

The report, released Friday by the U.S. Department of Agriculture’s Food Safety and Inspection Service (FSIS), reviewed the listeria outbreak linked to the deli meat supplier’s facility in Jarratt, Va.

In one case, inspectors said they found “meat and fat residue from the previous day’s production on the equipment, including packaging equipment.” Other instances included dripping condensation “on exposed product” and “cracks, holes and broken flooring that could hold moisture and contribute to wet conditions.” 

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The outbreak lasted from July through November 2024, according to the Centers for Disease Control and Prevention. With cases reported in over 19 states, it was the largest outbreak of the foodborne bacterial illness since 2011.

In an email to NPR, a spokesperson for Boar’s Head said: “We continue to actively cooperate with the USDA and government regulatory agencies on matters related to last year’s recall, and we thank them for their oversight.”

In addition, the spokesperson said the company is working to implement enhanced food safety programs, “including stronger food safety control procedures and more rigorous testing at our meat and poultry production facilities.”

Boar’s Head recalled its ready-to-eat liverwurst products linked to the outbreak in July. The recall later expanded to dozens of products, including sliced hams and sausages, all of which were manufactured at the Virginia plant.

USDA inspection reports show sanitation violations were routine and not isolated at the plant, NPR previously reported. The reports found dead bugs, dripping ceilings, mildew and black mold near machines at the plant.

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In September, Boar’s Head permanently closed its Jarratt plant and the company announced it would discontinue making any liverwurst products.

Friday’s report also included a review of FSIS’s own practices and procedures to prevent the spread of listeria, including ways to enhance its regulatory and sampling approach to the illness. The report cited “equipping FSIS inspectors with updated training and tools to recognize and respond to systemic food safety issues” as one of the steps the agency would take to protect the public from listeria.

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Los Angeles Geared Up for Fire Risk, but Fell Short

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Los Angeles Geared Up for Fire Risk, but Fell Short

Follow continuing coverage of the wildfires in Southern California.

The alert came in blaring, hot-pink, all-caps: Be prepared for a “LIFE THREATENING & DESTRUCTIVE WINDSTORM!!!”

The notice on Monday was one in a series of warnings issued by the National Weather Service about the powerful Santa Ana winds that were about to blow through Southern California, which hadn’t seen serious rain in months.

Officials in Los Angeles, a city that is accustomed to treacherous fire conditions, turned to a well-worn playbook. The city predeployed nine trucks in vulnerable areas and called in 90 extra firefighters. The county fire department moved 30 extra engines into the field and called up 100 off-duty firefighters. The U.S. Forest Service brought in trucks and support units, as well as bulldozers, helicopters and planes.

But by Tuesday afternoon, five hours after a fire ignited high in a canyon in the oceanside Pacific Palisades neighborhood, it was clear their preparations would not be enough. As furious wind gusts approaching 100 miles per hour tore through the city and propelled showers of embers that ignited entire neighborhoods, Anthony Marrone, the chief of the Los Angeles County Fire Department, stood at a command post on the edge of the Pacific Ocean.

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Blasted by dust and dirt kicked up by the relentless wind, he snapped a picture with his phone of smoke obscuring the sun and looked out at a panorama of flames, smoke and debris. The fire, he thought to himself, looked unstoppable. It was moving “like a funnel, like a speedway,” he said. “I knew that if we had one start, we probably weren’t going to be able to contain it.”

The conflagrations that killed at least 11 people and destroyed thousands of homes have raised questions about whether the dozens of federal, state, county and city fire departments involved in this week’s fire response deployed enough resources — and the extent to which modern firefighting tools are effective against the megafires that have become increasingly common in California over the past decade.

It was only hours before a situation that bore no resemblance to an ordinary red-flag alert, the kind set off when the Santa Ana winds blow in over the Mojave Desert from the inland West, began to evolve. A second huge fire broke out in Altadena, the unincorporated area adjacent to Pasadena, destroying more than 5,000 structures. A third ignited in Sylmar, to the north, and yet another, the next day, in the Hollywood Hills.

Chief Marrone quickly acknowledged that the 9,000 firefighters in the region were not enough to stay ahead of the fires.

“We’re doing the very best we can, but no, we don’t have enough fire personnel,” he said at a news briefing on Wednesday afternoon. “The L.A. County Fire Department was prepared for one or two major brush fires, but not four.”

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The hurricane-force winds, low humidity and parched landscape created unusually perilous conditions: On the first day, when the Palisades and Eaton fires broke out, it was too windy by late afternoon to send up the aircraft whose drops of water and fire retardant might have helped slow the spread of the blazes.

Chief Marrone said the parched terrain and the concentration of homes, surrounded by forested hillsides, also combined to create an indefensible landscape.

“The next time I’m not going to do anything differently because I don’t feel that I did anything wrong this time,” he said in an interview.

Los Angeles city fire officials had a similar view. “The fire chief did everything she could with the resources she had,” Patrick Leonard, a battalion chief with the Los Angeles Fire Department, said, referring to the city’s fire chief, Kristin Crowley.

The question of resources will almost certainly arise in the weeks ahead as the fire response is analyzed. The Los Angeles Fire Department has said for years it is dangerously underfunded. A memo sent to city leaders in December by Chief Crowley complained that recent budget cuts had “severely limited the department’s capacity to prepare for, train for, and respond to large-scale emergencies, including wildfires.”

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But there are a host of other factors at play. Fire experts have long warned that climate change and more home-building outside of urban areas are straining firefighters’ ability to prevent and contain fires. As fires have grown in size and complexity, California has explored mitigation through thinning brush out of forests, safer power grids and shoring up home protection. But it has been far from enough, they say.

The fires in Los Angeles have also raised the critical question of how departments can battle so many powerful infernos at once. After the Woolsey fire burned more than 1,600 structures in the northern part of the county in 2018 — at the same time that other major fires were raging across the state — Los Angeles County commissioned an assessment that found that the simultaneous outbreaks had slowed the ability of other fire agencies to fight the blaze because they were already busy.

Lori Moore-Merrell, the head of the U.S. Fire Administration, a division of the Federal Emergency Management Agency, who flew this week to Los Angeles to inspect the firefighting efforts and damage, said she believed that the reason for the widespread devastation was not the firefighting response.

“They deployed enough,” Dr. Moore-Merrell said in an interview. “This fire was so intense. There isn’t a fire department in the world that could have gotten in front of this.”

The question of predeployment will almost certainly prove one of the keys to understanding the response.

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It nearly always involves weighing a host of unknown factors. Firefighting experts agree that having engines and firefighters very close to the site of an outbreak is essential, especially in very windy conditions; fires in those cases must be stamped out immediately, or they will very likely begin to spread out of control.

“Once a wind-driven fire is well established you’re not going to put it out,” said Patrick Butler, a former assistant chief of the Los Angeles Fire Department who ran the response to many of the major fires the city has faced over the past decade.

With the threat of highly destructive fires increasing, he said, fire authorities should “flood” fire-prone areas with extra fire engines and crews during times of high winds.

But such predeployments are enormously costly, and fire chiefs often have a tough task convincing political leaders to repeatedly spend the money on them — especially when no fires break out.

Chief Butler, who now runs the fire department in Redondo Beach, Calif., said he prepositioned firefighters on a large scale at least 30 times during heightened fire threats. Fires broke out after those threats just three times, but to him, it was worth the cost.

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“I’m not in the business of making decisions that are politically palatable,” he said.

Chief Marrone began preparing for his own predeployments after meteorologists at the National Weather Service, on the first weekend of the new year, issued a bulletin warning of a “Particularly Dangerous Situation” — code words for a severe weather warning, the kind the federal government issues only about two dozen times a year. Based on the conditions in Los Angeles, it was clear that fire would almost certainly ensue.

The chief authorized overtime and supplemental state funding to add 100 people for duty drawn from a pool of around 2,000 off-duty firefighters so they could have more units prepositioned in areas known to be vulnerable to fire, including Santa Clarita and the Santa Monica mountains.

He prepositioned four strike teams, each with five trucks, and asked the California Department of Forestry and Fire Protection, the state fire agency known as Cal Fire, to preposition two more teams. The staffing was typical for a red-flag wind event, he said. Early on Tuesday morning, the chief ordered that 900 firefighters who were finishing their shifts stay on the job. The decision increased the number of county firefighters on duty to 1,800.

And the U.S. Forest Service, which fights fires in national forests, also began mobilizing. Adrienne Freeman, an agency spokeswoman, said that on Monday, the day before the winds kicked up and the first fires started, the agency had 30 trucks from out of state and Northern California in place at four Southern California forests and at a local coordination center. On Monday night, the agency called in 50 more trucks that arrived on Tuesday, she said.

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The city fire department proceeded with prepositioning the nine fire trucks it was deploying on Tuesday morning, according to an internal document reviewed by The New York Times, three each in Hollywood, Sunland Valley — in the northwestern part of the city — and near the city of Calabasas in the western foothills. The extra 90 firefighters the city was predeploying were called up on overtime. No extra trucks were sent to Pacific Palisades.

Those extra firefighters the city of Los Angeles called on made up less than a tenth of the approximately 1,000 on duty on any given day. And the 100 additional people called up by the county added to its daily firefighting force of 900.

Mr. Leonard, the city battalion chief, said the trucks were positioned based on historical patterns of fire during high-wind events.

“Predicting where the fire is going to start is a scientific guess,” he said.

Then the wind started, and the first embers started flying.

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Chief Crowley, with the city department, texted the chiefs in the counties surrounding Los Angeles at 10:35 a.m. Tuesday, five minutes after the Palisades fire was first reported, notifying them, according to an account of the messages shared with The Times.

Chief Marrone responded immediately. “What do you need?” he texted.

The Ventura County chief said he was sending strike teams. “They’re on the road now,” he wrote.

Orange County’s chief said he could provide three strike teams of five trucks each, along with a helicopter and a crew that uses hand tools to cut firebreaks.

The Los Angeles Fire Department put out a call for off-duty members to come to their stations and scoured mechanic yards for vehicles.

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Tens of thousands of people were being evacuated out of Pacific Palisades as the fire spread out of the foothills, leaping across the four lanes of Pacific Coast Highway and wiping out restaurants and homes along the coast.

Then, at 6:18 p.m. on Tuesday, came more stunning news: the second major fire, in Altadena, had ignited.

Chief Marrone put Eaton Canyon, the site of the new fire, into a navigation app and set off from the Palisades. Stuck in bumper-to-bumper freeway traffic, he could see the fresh fire and its smoke swelling into the sky.

Around 9 p.m., he called Brian Marshall, the chief of fire and rescue for the California Office of Emergency Services.

“I said, ‘We are out of resources, we need help,’” Chief Marrone said. He requested 50 strike teams, a total of 250 fire engines and 1,000 firefighters.

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At 10:29 p.m., a third major fire ignited in Sylmar, in the northernmost part of the San Fernando Valley, about 25 miles northwest of downtown Los Angeles, and a fourth broke out near Santa Clarita on Wednesday afternoon.

Mutual aid teams from across the West, and beyond, began streaming toward Los Angeles.

Firefighters tried and failed to stay ahead of the furious flames.

“Resources were scarce” during the initial hours of the blazes, said Capt. Jason Rolston of the Orange County Fire Authority, who was among those who traveled to join the firefighting effort in Los Angeles. “There were too many houses to protect, and not enough fire engines.”

The wind was gusting so powerfully that smoke boiled across the terrain. Firefighters said the barrage of ash and soot was so overwhelming at times that they struggled to even move through the fire zone.

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“There would be times when you couldn’t see 10 feet in front of the rig,” said Capt. Shawn Stacy, another Orange County firefighter who deployed to the Palisades fire. “What went wrong is that you had 80-m.p.h. winds.”

Some firefighters said there was so much demand on water systems that they ran out of water.

Capt. Ryan Brumback of the Los Angeles County Fire Department said he was five hours into an all-out effort to save buildings in Altadena from the Eaton fire early Wednesday morning when the hydrants started running dry — a situation firefighters also faced in the Palisades.

Suddenly, he said, “we noticed our hoses became very limp and soft.” The problem, he said, was that a power shut-off intended to prevent additional ignitions also shut off the pumps that help with water pressure in Altadena. “It was devastating, because you want to do all that you can do.”

By Friday, both initial major fires were still burning with little containment, and others that ignited later in the week also required aggressive responses, particularly in the Hollywood Hills on Wednesday evening and in the West Hills, northwest of Los Angeles, late on Thursday. Fire officials were still focused on saving lives and homes, and said they would spend time later looking at whether their preparations had been sufficient.

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“It wasn’t for a lack of preparation and decision making that resulted in this catastrophe,” Chief Marrone said at a news briefing on Saturday. “It was a natural disaster.”

The coming analysis, several experts said, will have to take into account that the standard guidelines that have long determined red-alert fire responses may no longer apply, as weather and fires become more virulent.

“There’s going to be a real reckoning about land use, escape routes, water pressure, water supply,” said Zev Yaroslavsky, a former longtime Los Angeles City Council member and county supervisor. Mr. Yaroslavsky said the fire might serve as a “Pearl Harbor” moment for the city, an alarm bell that signals fundamental new questions about how the city approaches the threat of wildfires.

“A lot,” he said, “will be reassessed.”

Nicholas Bogel-Burroughs and Ivan Penn contributed reporting.

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Co-leader of Germany’s far-right AfD calls for mass deportations

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Co-leader of Germany’s far-right AfD calls for mass deportations

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The co-leader of the far-right Alternative for Germany has called for mass deportations of immigrants as the party launched its programme for next month’s nationwide elections.

In a fiery speech to supporters in the small town of Riesa in Saxony, east Germany, Alice Weidel said that under the AfD — which is second in the polls with a record vote share of around 20 per cent — Germany would witness “repatriations on a large scale”.

Weidel, AfD’s candidate for chancellor in the elections, used the controversial term “remigration” to describe the policy.

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The word was coined by right-wing Austrian ideologue Martin Sellner, who defines “remigration” as forcibly removing immigrants who break the law or “refuse to integrate”, regardless of their citizenship status — an idea that critics say is akin to ethnic cleansing.

On Saturday Weidel said: “I have to tell you quite honestly: if it’s called remigration, then it’s called remigration.”

She was met with loud applause from party delegates who also repeatedly shouted “Alice für Deutschland” — a play on the forbidden Nazi-era slogan “Alles für Deutschland”, meaning “everything for Germany”.

Weidel, a former Goldman Sachs analyst, has positioned herself as the more presentable face of a party that includes ultraradicals who have been classified as right-wing extremists by Germany’s domestic intelligence agency.

Earlier this week in a joint appearance on X with Elon Musk, Weidel used the unprecedented public platform to argue that the AfD — which also promotes normalisation of relations with Moscow and the tearing down of wind turbines — had become a mainstream political force.

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However, it has little chance of coming to power in the upcoming elections because all of Germany’s other major parties have ruled out going into coalition with it.

Weidel’s embrace of remigration was seen by some in the party as a nod to Björn Höcke, the flag-bearer of the radical right who led AfD to a historic first-place finish in regional elections in the east German state of Thuringia in September.

“It is a concession to Björn Höcke,” said Kay Gottschalk, a member of the German Bundestag who belongs to the more moderate flank of the party. “It is a word, of course. I would express it in another way — sending them back — but that is what delegates want.”

Weidel also used her speech to repeat her call for the Nord Stream gas pipeline from Russia to Germany to be brought back into operation, to bring back nuclear power and to rail against gender studies programmes.

The party gathering was met with large-scale protests. Around 10,000 anti-AfD demonstrators turned up and police put Riesa, a town of 30,000 people, under lockdown, delaying the start of the conference by two hours.

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