A Tale of Two Economies (Part II)

Daily Data: Capex only has eyes for AI (mostly)

In today’s dispatch:

• consumers might be cautious, but the biggest companies are spending a lot of money on this one special thing

• cloud is cooking, and cloud providers are cooking up a lot more cloud

• why we need more use cases, or pining for the AI super app

• how people are using AI now (maybe)

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A Tale of Two Economies (Part II)

Yesterday, we covered the consumer side of the economy (as told by earnings), with “cautious consumerism” front and center.

The gist of it was that people are still spending money because they still have jobs, but they are gravitating towards cheaper and value options. OK, same old, same old.

Today, Random Walk does a quick rundown of the enterprise side of things, where spenders are also cautious, with one very big exception: when it comes to AI, it’s all systems go.

More specifically, enterprise customers are spending a lot on AI-related infrastructure and tools, which is prompting those infrastructure and tool companies to announce “we’re going to have to spend a lot, a lot to build more of AI infrastructure and tooling.” Mostly, these companies have focused on lowering costs (and they’re not alone), so spending a lot of money is a big deal. There’s a lot riding on it.

This is good, healthy and, by now, a well-covered theme.

The point is not to be comprehensive, but really to emphasize:

• the centrality of AI to the current state of public markets and its biggest companies;

• that these big companies are, in fact, generating real earnings (some portion of which is driven by demand for AI); and that

• massive capital investments are both planned and underway, based on expectations of future demand.

In other words, all bets are on AI as a transformational technology (even if it isn’t yet).

We are well past fad or passing fancy, and the stakes are very high, but hey, nothing ventured, nothing gained.

Cloud services are cooking

The first thing that jumps out is the the big cloud providers are having no trouble selling cloud services.

Just some snippets:

• AWS continues to grow:

  

• Microsoft “Intelligent Cloud” continues to grow:

  

• Google Cloud continues to grow:

  

Overall, spending on cloud increased ~20%+.

More enterprises are spending more on data and they’re offloading more of it to third-party services.

That change has been in the works for a while, but while other software spend has started to taper, this one isn’t slowing down.

CapEx is going up (and it was already going up)

To be fair, it’s hard to say precisely what portion of that cloud-spend was AI-driven (although Microsoft estimated that ~25% of its growth was attributable to AI), but it’s definitely not nothing.

It certainly stands to reason that AI would drive growth for cloud.